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

This article analyzes the long-term global economic transitions related to demographic changes, productivity growth shifts, and climate-related disruptions, focusing on their implications for international capital flows and the global financial system. Using the G-Cubed model—a hybrid dynamic stochastic general equilibrium and computable general equilibrium framework widely employed by institutions such as the International Monetary Fund (IMF)—the study quantitatively examines how these transitions will create asymmetric investment needs across countries and over time, leading to significant changes in trade balances, real exchange rates, and interest rates. Key findings include the projection of capital flowing from aging economies to younger, faster-growing regions, the potential for productivity surges driven by technological adoption to reshape investment and trade patterns, and the substantial economic impacts of climate physical risks and transition policies aimed at achieving net-zero emissions by 2050. The paper underscores the necessity for coordinated policy responses and reforms in international financial institutions to manage these large-scale capital reallocations and support emerging and fossil-fuel-dependent economies during these transitions.