7  If resource utilization was at a normal level and inflation was equal to 2 percent, policymakers would presumably opt to set the real federal funds rate equal to the equilibrium real rate in order to maintain those conditions. Accordingly, if the equilibrium rate is rising over time, the “neutral” setting of monetary policy should be rising in tandem.
Rate of price increase Next, I elaborate on the linkage between demographic changes and deflation from a viewpoint of macroeconomic performance. Seemingly, there would be no linkage between demography and deflation. But it may not be the case.