ESRI Discussion Paper Series No.73
The Development of A General Equilibrium Overlapping
Generations Simulation Model: survey

October, 2003
Kenichi Kawasaki
(Senior Research Fellow, Economic and Social Research Institute,Cabinet Office)
Manabu Shimasawa
(Visiting Fellow, Economic and Social Research Institute, Cabinet Office; Akita Keizaihoka University)

(Abstract)

There have been various quantitative studies both at home and abroad on the economic impact of an ageing population using an Overlapping Generations (OLG) simulation model initiated by Auerbach and Kotlikoff in 1983. The purpose of this paper is to survey the OLG models in the past representative studies and to drive a direction for the future development of the model.

After explaining the theoretical foundation and the basic framework of an OLG simulation model, several extensions of the model will be discussed. Moreover, policy implications will be induced from the earlier analyses using an OLG simulation model. It has been pointed out that an ageing population would lower economic growth rates through the two channels of capital formation and labor supply, and would have an adverse effect on the welfare distribution among the cohorts.

However, those conclusions in earlier studies are entirely dependent on the assumptions and the conditions of the analyses. Therefore, it will be necessary to analyze the universal economic impact of an ageing population by a model in which the assumptions are more generalized. In particular, in developing and improving an OLG model in the future, it is effective to analyze the impact of an ageing population not just on the Japanese economy but also on the other economies while taking into account the effects of the movement of production endowments, such as capital, among the regions.

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