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This paper uses the G-Cubed (Asia-Pacific) model-a macroeconomic model with rich cross-country links-to explore the implications for Japan and Asia of several shocks to the Japanese economy. The results suggest that, while fiscal consolidation in Japan would initially dampen domestic growth, over the medium term the impact on both the domestic and regional economies would be positive. Quantitative monetary easing in Japan would boost domestic activity in the short-run, while being basically neutral for the region. Finally, a loss of confidence in the yen would be negative for Japan, but positive for the region because of a reallocation of capital flows toward non-Japan Asia.

Banks and Banking --- Exports and Imports --- Investments: Stocks --- Macroeconomics --- Public Finance --- International Factor Movements and International Business: General --- Open Economy Macroeconomics --- Macroeconomic Aspects of International Trade and Finance: Forecasting and Simulation --- Interest Rates: Determination, Term Structure, and Effects --- Trade: General --- National Government Expenditures and Related Policies: General --- Pension Funds --- Non-bank Financial Institutions --- Financial Instruments --- Institutional Investors --- Fiscal Policy --- Finance --- International economics --- Public finance & taxation --- Investment & securities --- Real interest rates --- Exports --- Expenditure --- Stocks --- Fiscal consolidation --- Financial services --- International trade --- Fiscal policy --- Imports --- Interest rates --- Expenditures, Public --- Japan

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The world is in the midst of a major demographic transition. This paper examines the implications of such transition over the next 80 years for Japan, the United States, other industrial countries, and the developing regions of the world using a dynamic intertemporal general equilibrium four-country model containing demographics calibrated to the "medium variant" of the United Nations population projections. We find that population aging in industrial countries will reduce aggregate growth in these regions over time, but should boost growth in developing countries over the next 20-30 years, as the relative size of their workingage populations increases. Demographic change will also affect saving, investment, and capital flows, implying changes in global trade balances and asset prices. We also explore the sensitivity of the results to assumptions about future productivity growth and country external risk for the developing country region.

Aging -- Economic aspects -- Econometric models. --- Capital movements -- Econometric models. --- Demography -- Econometric models. --- Population -- Economic aspects -- Econometric models. --- Saving and investment -- Econometric models. --- Business & Economics --- Demography --- Population --- Aging --- Saving and investment --- Capital movements --- Econometric models. --- Economic aspects --- Capital flight --- Capital flows --- Capital inflow --- Capital outflow --- Flight of capital --- Flow of capital --- Movements of capital --- Accumulation, Capital --- Capital accumulation --- Capital formation --- Investment and saving --- Saving and thrift --- Age --- Ageing --- Senescence --- Human population --- Human populations --- Population growth --- Populations, Human --- Historical demography --- Physiological effect --- Balance of payments --- Foreign exchange --- International finance --- Capital --- Supply-side economics --- Wealth --- Investments --- Developmental biology --- Gerontology --- Longevity --- Age factors in disease --- Economics --- Human ecology --- Sociology --- Malthusianism --- Social sciences --- Vital statistics --- Demographic Trends, Macroeconomic Effects, and Forecasts --- International Investment --- Long-term Capital Movements --- Macroeconomics: Consumption --- Saving --- Investment --- Intangible Capital --- Capacity --- Economics of the Elderly --- Economics of the Handicapped --- Non-labor Market Discrimination --- Demographic Economics: General --- Health: General --- Population & demography --- Population & migration geography --- Health economics --- Demographic change --- Population and demographics --- Health --- Demographic transition --- Population aging --- Japan

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Background paper prepared for the October 2020 IMF World Economic Outlook. This paper provides a detailed presentation of the simulation results from the October 2020 IMF World Economic Outlook chapter 3 and an additional scenario with carbon pricing only for comparison with the comprehensive policy package where green investments were also included. This paper has greatly benefitted from continuous discussions with Oya Celasun and Benjamin Carton on the design of simulations; contributions from Philip Barrett for part of the simulations; and research support from Jaden Kim. We also received helpful comments from other IMF staff. All remaining errors are ours. McKibbin and Liu acknowledge financial support from the Australian Research Council Centre of Excellence in Population Ageing Research (CE170100005).

Macroeconomics --- Economics: General --- Taxation --- Environmental Economics --- Environmental Conservation and Protection --- Natural Resources --- Model Construction and Estimation --- Forecasting and Other Model Applications --- Quantitative Policy Modeling --- Large Data Sets: Modeling and Analysis --- Open Economy Macroeconomics --- Environmental Economics: General --- Valuation of Environmental Effects --- Climate --- Natural Disasters and Their Management --- Global Warming --- Taxation and Subsidies: Externalities --- Redistributive Effects --- Environmental Taxes and Subsidies --- Nonrenewable Resources and Conservation: General --- Economic & financial crises & disasters --- Economics of specific sectors --- Public finance & taxation --- Environmental economics --- Climate change --- Environmental management --- Carbon tax --- Taxes --- Greenhouse gas emissions --- Environment --- Non-renewable resources --- Climate finance --- Currency crises --- Informal sector --- Economics --- Environmental impact charges --- Greenhouse gases --- Emissions trading --- Natural resources --- Climatic changes --- China, People's Republic of

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This paper assesses the economic effects of climate policies on different regions and countries with a focus on external adjustment. The paper finds that various climate policies could have substantially different impacts on external balances over the next decade. A credible and globally coordinated carbon tax would decrease current account balances in greener advanced economies and increase current accounts in more fossil-fuel-dependent regions, reflecting a disproportionate decline in investment for the latter group. Green supply-side policies—green subsidy and infrastructure investment—would increase investment and saving but would have a more muted external sector impact because of the constrained pace of expansion for renewables or the symmetry of the infrastructure boost. Country characteristics, such as initial carbon intensity and net fossil fuel exports, ultimately determine the current account responses. For the global economy, a coordinated climate change mitigation policy package would shift capital towards advanced economies. Following an initial rise, the global interest rates would fall over time with increases in the carbon tax. These external sector effects, however, depend crucially on the degree of international policy coordination and credibility.

Climate --- Environmental Taxes and Subsidies --- Global Warming --- International Policy Coordination and Transmission --- Natural Disasters and Their Management --- Open Economy Macroeconomics --- Redistributive Effects --- Taxation and Subsidies: Externalities