ESRI Discussion Paper Series No.239
Simulation Analysis of Macroeconomic Impact of Large Scale Earthquake in Tokyo

Motohiro Sato
Professor, Graduate School of Economics, Hitotsubashi University
Kazumasa Oguro
Senior Research Fellow, Institute for International Policy Studies

The full text is written in Japanese.

Abstract

The present paper considers a simple (Keynesian) macroeconomic model to quantify impacts of the large scale earthquake in Tokyo on national economy variables such as economic growth, price level, interest rate, fiscal balance by Monte Carlo simulations.

The simulations reveal that while GDP falls immediately after the disaster, there will be quick recovery restructuring projects boosting the economy. Overall, the impact of the earthquake on the economy seems to be limited. The reason behind this result is that our staged economy with society aging damps supply decline and increasing macro demand after the disaster with keeping GDP gap modest. It is noted however that the large scale earthquake increases probability that interest rate surges and government goes bankrupt with public debt being accumulated. We also discuss ex ante preventive policies to mitigate detrimental effects of the disaster. They include captive, or fund for disaster relief and fiscal consolidation.

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