, and this is mainly down to the demographically - induced decline in the number of hours worked. per capita growth looks somewhat better because of the shrinking population, but here again, germany ranks no better than mid - table compared with its european peers, according to the oecd. our economists ’ estimate of potential output i mentioned just now is based, then, on the best possible forecast of how the labour supply will develop in the years ahead. 4 / 7 bis central bankers'speeches notable shifts in the composition of the labour supply will be evident within the space of just a few years. the working - age population is a relevant factor for determining potential output. this labour force potential is defined relatively broadly, with ages ranging between 15 and 74. depending on which net immigration flows one assumes, this potential will pass its peak between 2020 and 2023. given cumulative net immigration of 2. 5 million people, the labour force potential in 2025 will be roughly as high as today ’ s. the age structure will have changed considerably, however. the number of people aged between 60 and 74 will have risen by more than three million, but the number of employed people will have increased by just one million, assuming that labour force participation in this age cohort remains unchanged. by contrast, the 45 to 54 age cohort will have fallen by 3½ million. because labour force participation is very high in this age group, the decrease will push down the labour force to almost the same degree. this can be blamed on the decline in the birth rate in the 1960s that i mentioned earlier, so it has long been expected. another population decline has been forecast, this time in the under - 35 age cohort, though much of this particular effect will be offset by immigration. migrants tend, on average, to be far younger than the existing population. one out of two migrants since 2010 has been aged between 20 and 30 years old. the strong influx of refugees to germany in 2015 even caused the average age of the population in germany to fall for the first time since reunification : from 44 years and four months to 44 years and three months. labour force participation will presumably continue to rise in certain age groups. increasing the statutory retirement age should therefore see to it that the actual age when people retire goes up as well. the proportion of physically demanding jobs is also on the wane, so older people will be able to stay in work for longer. the “ flexi retirement ” scheme launched this year is also

- stationary – whereas under price - level targeting, the rate of inflation will be stationary, and the price level will be trend stationary. hence, price - level targeting would limit uncertainty regarding the future price level and thus facilitate the forecasting of the real value of future payment flows which are fixed in nominal terms ( as is the case in the majority of financial contracts ). this would be beneficial because it would tend to reduce the risk premiums demanded by risk - averse creditors and thus lower the cost of capital. however, according to conventional wisdom, the potential benefits of the reduction in uncertainty regarding the future price level must be weighed against the potential cost of correcting shock - induced price - level shifts. bringing the price level back onto the target path may induce additional fluctuations in the inflation rate and real economic activity compared with targeting the inflation rate. whereas this reasoning may persuade us to be sceptical, the recent academic literature has stressed the potential benefits of price - level targeting which arise from the stabilising effect of the price - level target on inflation expectations. in this respect, price - level targeting has gained particular importance in the current period of extremely low policy rates since the stabilising effects of the price - level target on inflation expectations have the added advantage of reducing the probability of hitting the zero interest rate bound. this argument is based on the following reasoning : a negative aggregate demand shock leads to a drop in the price level to below the target path. if the central bank ’ s commitment to the price - level target is credible, the private sector anticipates that the price level will return to its target. hence, a drop in the price level will lead to an automatic rise in inflation expectations. this movement of inflation expectations mitigates the effect of the original shock on the inflation rate. consequently, for a given nominal interest rate, the real interest rate decreases. this stimulates aggregate demand and, in turn, keeps the required nominal interest reduction to a minimum. hence, a credible price - level targeting regime lowers the risk of hitting the zero bound and falling into a deflationary trap following a negative goods demand shock. given these stabilising attributes of price - level targeting, it is hardly surprising that price - level targeting regularly performs well in simulation studies which compare price - level targeting and inflation targeting under the assumption that the central bank is constrained to act under discretion. it may be argued, however, that when considering a fundamental change in the monetary policy regime, the