The Macroeconomic Implications of Ageing in a Global Context

Abstract

stability, since the dynamic gains from these should have a permanent positive influence on growth in living standards. 13.Reviewing specific aspects of each of the above policies in the context of individual model simulations (summarised in Table 1), suggests that taken in isolation, none of the specified measures is likely to offset the projected decline in growth in OECD living standards.However, a suitable package of reforms comprising key elements of these policies should go a long way to re-establishing earlier growth trends, with favourable effects on world real interest rates and GNP.Specifically the benefits of such combined measures are estimated as raising growth in living standards by as much as 0.3, 0.6 and 0.7 per cent per annum for the United States, Japan and the European Union respectively and reducing real interest rates by up to 1½ percentage points, relative to the "business-as-usual" case. 14.Both timing and co-ordination are important.Delay in responding effectively to the fiscal issues is likely to lead to a larger build-up in debt and require potentially greater and less manageable changes in public finances in the longer term.At the same time, unilateral actions are likely to be less productive and run the risk of heightening international tensions, through large shifts in trade and payments situations and in real exchange rates. 15.The remainder of this paper is organised as follows.The long-term "reference scenario" is presented in section 2 along with its main assumptions and a discussion of key uncertainties.Section 3 then presents a range of alternative scenarios, illustrating the effects of alternative policy responses to underlying tensions, along with a review of the evidence from other studies.A Technical Annex describes the structure of the Minilink model, and its theoretical and empirical underpinnings, as well as giving details of standard simulation properties, sensitivity analysis to key assumptions and parameters and specific details of a number of "off-model" calculations involved in constructing the reference-case and alternative-policy scenarios. 2.Assessing the effects of ageing in a long-term scenario context Key assumptions underlying the reference scenarioFigure 5. Shares in world GDP (at 1995 purchasing power parities) 2003 United States: 19.8% Japan: 7.2 %

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