Ralph W. Tryon

Macroeconomic Effects of Projected Population Aging in Industrial Countries

The effects of population aging are examined with a theoretical model and simulations of MULTIMOD. An older population will consume more of aggregate disposable income, require higher government expenditure, and decrease labor supply. These effects should raise real interest rates and lower capital stock and output. Effects on current balances will depend on the relative speed and extent of aging. Simulations of projected demographic changes suggest that by 2025, real interest rates would be increased in all countries, and net foreign assets would be increased in the United States and decreased in the Federal Republic of Germany and Japan.

Monetary Policy and Price Stability

This paper explores issues that arise in implementing monetary policy under conditions of sustained price stability. We discuss several issues that concern the selection of a central banks inflation objective under such conditions: price measurement; the behavior of other key variables, particularly wages; and the possible existence of other channels through which low inflation could change relationships within the real economy. We present a framework for analyzing monetary policy reaction functions that can illuminate the choices facing policy makers in a regime of price stability. The zero lower bound on nominal interest rates is a potential constraint on monetary policy when nominal interest rates are low on average, which will tend to be the case when long-term inflation is low. We summarize the results of research done at the Federal Reserve to clarify these issues for the United States and consider the availability and effectiveness of alternative policy tools when the nominal interest rate is at the zero bound.

A Guide to FRB/Global

This paper describes the structure and illustrates the key features of FRB/Global, a large-scale macroeconomic model used in analyzing exogenous shocks and alternative policy responses in foreign economies and in examining the impact of these external shocks on the U.S. economy. FRB/Global imposes fiscal and national solvency constraints and utilizes error-correction mechanisms in the behavioral equations to ensure the long-run stability of the model. In FRB/Global, expectations play an important role in determining financial market variables and domestic expenditures. Simulations can be performed using either limited-information (adaptive) or model-consistent (rational) expectations.