unfortunately, the measure of liabilities that results from this process has a real consequence : it pushes the burden of financing today's pension benefits onto future taxpayers, who will be called upon to fund the true cost of existing pension promises. another challenge that everyone involved in public pensions faces is the issue of transparency. unlike private pension funds, public pension systems do not account for liabilities in a standardized way. as a result, public employees, taxpayers, municipal bond investors, credit rating agencies, and other market participants have a hard time comparing funding levels across systems and over time. what steps can pension funds take to improve transparency and help clarify their long - run challenges? ideally, they would disclose a standardized measurement of funding status, using consistent and appropriate measures of liability. they might also disclose how their asset allocation affects the volatility of the returns on their assets and how their funding ratios and cash flow might be affected by various outcomes in the financial markets. such practices almost surely would be welcomed externally. but they might also pay dividends internally, because the funds might find that the information about the volatility built into their systems changes their views about the amount of risk they want to shoulder. public pension funds hold more than $ 3 trillion in assets and cover nearly 20 million workers and retirees. those funds are clearly vital to the business of state and local governments across the country as well as to the public employees they cover. the potential improvements i have touched on today – adhering to best practices with regard to risk management and grappling with some of the difficult structural issues that currently face public pension systems – would help strengthen public pension systems and should minimize the risks to public employees, the governments that employ them, and the taxpayers that finance them both now and in the future.

the federal open market committee ( fomc ) as a consumer of model - based forecasts and analysis suggests that work remains to be done on both fronts - - and, in particular, on meeting both objectives with the same model. as regards the first property, the conceptual - - albeit informal - - framework that many policymakers like to use is largely " bottom up " and features costs and expectations. it starts with wages and the prices of other inputs into production, and after taking into account productivity, it sees prices set as a markup over unit costs. wage determination plays a key role in this framework and is influenced by such factors as inflation expectations, productivity, the views i express here are my own and not necessarily those of other members of the federal open market committee. flint brayton and david reifschneider, of the board's staff, contributed to these remarks. 1 / 4 and labor market slack ; the markup, too, is important because it varies over time depending on changes in the competitive environment, expected future costs, and other factors. at first glance, the empirical structural models currently favored in academic research and discussed at this conference - - such as the new keynesian phillips curve - - appear to conform to the informal policymaker model : expectations formation is dealt with formally, and price inflation, at least in some empirical representations, is directly tied to measures of unit labor costs. on closer inspection, however, one sees that the specifications of these models typically ignore important factors bearing on the inflation outlook. one category of neglected factors is price shocks - - changes in the levels of key inputs, such as energy or imports. policymakers spend a great deal of time discussing the circumstances under which such shocks can lead to persistent changes in the rate of inflation. yet, despite their historical importance for aggregate inflation, energy prices, for example, are controlled for in only one of the structural models discussed at this conference. and this importance is not necessarily a concern of the past : prices for oil and natural gas have soared since 2003, directly boosting the energy component of the consumer price index as well as raising the production costs, and ultimately to at least some degree the prices, of non - energy goods and services. as a policymaker, i can assure you that any model of inflation that did not take account of these effects, and how they might or might not affect ongoing rates of inflation, would have been of little practical use to the fomc over the past