The World Economy in the Long Run: Beware of Demographic Uncertainty!
Economic decisions on long term issues are based upon uncertain demographic projections, for which it is crucial to assign probability. The stochastic projection method allows to get such a probability distribution of future demographic paths. In this study, we consider the level of uncertainty in each of the ten major regions of the world, and their correlation across regions. The method we use assumes that we should expect forecast errors that are of the same order of magnitude as in the past. We produce stochastic simulations of the world population and illustrate the economic consequences with simulations performed with the INGENUE 2 macroeconomic model. We show that the assumptions regarding interregional correlations of forecast errors are important in a multi-regional framework: they have a large impact on the uncertainty of the demographic and macroeconomic variables, and they could modify substantially the macroeconomic adjustments.
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