Research and Studies

Home > Research and Studies > Bank of Japan Working Paper Series, Review Series, and Research Laboratory Series > Bank of Japan Working Paper Series 2012 > (Research Paper) Macroeconomic Impact of Population Aging in Japan

Macroeconomic Impact of Population Aging in Japan

: A Perspective from an Overlapping Generations Model

November 5, 2012
Ichiro Muto*1
Takemasa Oda*2
Nao Sudo*3

Click on Full Text [PDF 574KB]


Due to a sharp decline in the fertility rate and a rapid increase in longevity, Japan's population aging is the furthest advanced in the world. In this study we explore the macroeconomic impact of population aging using a full-fledged overlapping generations model. Our model replicates well the time paths of Japan's macroeconomic variables from the 1980s to the 2000s and yields future paths for these variables over a long horizon. We find that Japan's population aging as a whole adversely affects GNP growth by dampening factor inputs. It also negatively impacts on GNP per capita, especially in the future, mainly due to the decline in the fraction of the population of working-age. For these findings, fertility rate decline plays a dominant role as it reduces both labor force and saver populations. The effects of increased longevity are expansionary, but relatively minor. Our simulations predict that the adverse effects will expand during the next few decades. In addition to closed economy simulations, we examine the consequences of population aging in a small open economy setting. In this case a decline in the domestic capital return encourages investment in foreign capital, mitigating the adverse effects of population aging on GNP.

JEL Classifications
E20, J11

Population Aging; Overlapping Generations Model; Capital Flow.

The authors are grateful to Kiyohiko G. Nishimura, Eiji Maeda, Selahattin Imrohoroglu, Takatoshi Ito, Shinichi Fukuda, Tsutomu Watanabe, Kosuke Aoki, Kaoru Hosono, Daisuke Miyakawa, Robert Dekle, Toshitaka Sekine, Koichiro Kamada, Hibiki Ichiue, Kozo Ueda, Naoko Hara, Daisuke Ikeda, and seminar participants at the Federal Reserve Bank of St. Louis, Summer Workshop on Economic Theory at Kushiro Public University, Japan Center for Economic Research, and the Bank of Japan for their advice and comments. The views expressed in this paper are those of the authors and do not necessarily reflect the official views of the Bank of Japan.

  •   *1 Director, Research and Statistics Department
    E-mail :
  •   *2 Deputy Director, Research and Statistics Department
    E-mail :
  •   *3 Director, Financial System and Bank Examination Department
    E-mail :


Papers in the Bank of Japan Working Paper Series are circulated in order to stimulate discussion and comments. Views expressed are those of authors and do not necessarily reflect those of the Bank.
If you have any comment or question on the working paper series, please contact each author.
When making a copy or reproduction of the content for commercial purposes, please contact the Public Relations Department ( at the Bank in advance to request permission. When making a copy or reproduction, the source, Bank of Japan Working Paper Series, should explicitly be credited.