Longer-term structural transitions and shortterm macroeconomic adjustment: quantitative implications for the global financial system

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Prof Warwick McKibbin, Crawford School of Public Policy, Australian National University, Australia

Prof David Vines, Balliol College, Economics Department, and Oxford Martin School, University of Oxford, UK

This paper provides quantitative modelling of the effect of three longer-term global transitions: the global demographic transition involving a marked reduction in population growth; a long-term slowdown in productivity growth which may continue, or may conceivably be reversed; and the disruption in the global economy due to increasing climate shocks and the implementation of climate policies that will be needed to reach net-zero emissions by 2050. We study the global investment needs to which these transitions will lead. We demonstrate that these investment needs will be both asymmetric across countries and over time. This asymmetry will lead to potentially large changes in trade flows and significant financial capital flows across national borders, and also to substantial real exchange changes and interest rate movements. The resulting large movements in international capital flows will have significant implications for the global financial system, which we demonstrate at the country and regional level.

We are grateful to Chris Adam for helpful discussions, to Simon Wren-Lewis for very useful comments, and to Rudolfs Bems, Roshen Fernando, Florence Jaumotte, Luciana Juvenal, Weifeng Liu, Adele Morris, Augustus Panton, Adam Triggs, and Peter Wilcoxen for joint research used in this paper. We acknowledge financial support from the Australian Research Council Grant CE170100005 for the Centre of Excellence in Population Ageing Research.

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Longer-term structural transitions and shortterm macroeconomic adjustment: quantitative implications for the global financial system

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