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N° 2007-09 |
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| May 2007 |
| Global Ageing and Macroeconomic Consequences of Demographic Uncertainty in a Multi-Regional Model |
Juha Alho
Vladimir Borgy |
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While demographics have long been identified as a key variable in long term macroeconomic
analysis, most previous analyses have relied on deterministic population
forecasts. But, as several recent papers testify, demographic developments are uncertain,
and attempts at describing this via scenario-based variants have serious shortcomings.
Macroeconomic consequences of demographic uncertainty have not been explored in a
multi-regional setting of the world economy so far, but they can be of considerable interest.
The asynchronous nature of the ageing process is expected to influence macroeconomic
trends, but it is also of interest that the uncertainty of population forecasts differs across
world regions.
In this paper, we investigate the impact of demographic uncertainty in a multi-regional
general equilibrium, overlapping generations model (INGENUE 2). Specifically, we
consider the level of uncertainty in each of the ten major regions of the world, and their
correlation across regions. In order to address these issues, we produce stochastic
simulations of the world population for the ten regions until 2050. Then, we analyse the
economic consequences on a path by path basis over the period 2000-2050.
The stochastic simulations of population allow us to assign probability to the different
population paths that we generate. The economic simulations performed with the
INGENUE 2 model allow us to assess the uncertainty induced into key macroeconomic
variables, the GDP growth rate and the world interest rate in particular, by uncertain future
demographics. We show that the assumptions regarding interregional correlations of
forecast errors are crucial in this multi-regional model: they have a large impact on the
uncertainty of the macroeconomic variables: we illustrate this point by focusing on the
world interest rate dynamics. Furthermore, it appears that the macroeconomic adjustments
can differ substantially if we consider independence or high correlation across the regions.
In particular, the macroeconomic behaviour of the agents in the current account/saving
problem differs significantly across regions according to the degree of interregional
correlation. |
Non-technical summary |
Résumé
non-technique
en français  |
Full text
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| Computable General Equilibrium Models; international capital
flows; life cycle models and saving; demographic trends and
forecasts. |
Keywords |
| C68, F21, D91, J11. |
JEL classification |
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