Macroeconomic Impacts of Aging in Japan on the Balance of Current Accounts

This paper investigates questions regarding the saving rates by age brackets and aggregate savings, and then conducts a simulation analysis of the current account, from the I-S balances of households, corporations and the government. Saving rates of the old (65 years old and above) with publicly available data are high because of a selection bias in household head, that excludes the old living with younger family members and being non-head of the household. The paper estimates the true saving rates by age brackets rather than of household head's age brackets with taking the non-head households' member into account. Estimated saving rates of the old are still positive (about 10% to 20% which are less than those of the young) even after adjusting for the bias. The impact of aging on the aggregate saving rates will not be large if the future old people continue to save as the current old people. We forecast the current account in several scenarios, using data of demographic changes, the estimated aggregate saving rates, and the estimated interest payments of government bonds. It is of our particular interest whether the current account will turn to be negative by the rapid demographic change. It is found that the IS balances would remain positive under a condition that the government bond issues would be constrained by fiscal sustainability.