Economic Consequences of Population Aging in Japan: Effects through Changes in Demand Structure

In this paper I investigate the effects of changes in demand structure caused by population aging on the Japanese economy using a multi-sector new Keynesian model with job creation/destruction. I consider upward revisions in forecast for the speed of Japanese population aging as unexpected shocks to its demand structure. I find that the shocks caused around 0.3 percent point deflationary pressure on year-to-year inflation, 0.3 to 0.4 percent point increase in unemployment rates, and 1.8 percent point decrease in real GDP from the early 1990s to the 2000s in Japan. I also find that the repetition of such upward revisions made those effects look more persistent.