The Economic and Social Research Institute published "Economic Analysis No. 210 (Special Planning Issue) - Feature: Future Prospects Using New Long-term Projection Models" in July 2025, a collection of papers on the development and application of new models for analyzing ultra-long-term future prospects of the Japanese economy.
This issue features the results of new model development that enables ultra-long-term economic analysis, moving from conventional short- and medium-term analysis-focused models to address long-term challenges facing the Japanese economy including population decline, technological innovation, and climate change.
Hirokuni Iiboshi's paper "Challenges in DSGE Model Development" addresses the limitations of conventional DSGE models that specialized in short- and medium-term policy analysis, discussing the necessity and challenges of extending to long-term analysis. The importance of incorporating long-term factors such as technological progress, demographic dynamics, and institutional changes into the model is demonstrated.
The paper identifies key methodological challenges in extending DSGE models for long-term analysis:
- Incorporating demographic transitions and their economic impacts
- Modeling endogenous technological change and innovation processes
- Capturing institutional evolution and policy regime changes
- Addressing parameter stability over extended time horizons
The research emphasizes that traditional DSGE models, while effective for short-term stabilization policy analysis, require fundamental modifications to address structural economic transformations. The paper proposes solutions including the integration of demographic projections, endogenous growth mechanisms, and institutional change parameters to enhance the models' long-term predictive capacity.