support the broader economy. finally, the treasury recently announced a program to assist banks and other lenders in finding markets for their " legacy assets " – that is, real estate - related assets that were accumulated during the housing boom and have since declined in value and become relatively illiquid. uncertainty about the value of legacy assets is weighing on confidence in banks, and so helping banks to dispose of such assets should contribute to their ability to raise capital and increase lending. employing its fiscal policy tools, the government has enacted a multifaceted program of stimulus that will provide direct support to spending and economic activity. in february, the president signed into law a $ 787 billion package that included cuts in taxes and increases in transfer payments for households, lower taxes for businesses, higher spending for infrastructure investments, and additional financial assistance to state and local governments, many of which would otherwise have been forced to cut spending in response to declining revenues. although the exact effects of these measures on the economy are difficult to gauge, they will likely provide a significant boost to activity. according to the congressional budget office, the effect of the stimulus package on the level of real gdp at the end of 2010 could range from about 1 percent to more than 3 percent, relative to a baseline forecast that does not include the stimulus. that additional gdp translates into an unemployment rate by the end of next year that is between 1 / 2 and 2 percentage points lower than it otherwise would be. with the tax cuts already showing up in paychecks, increases in transfer payments already in place, and grants to states and localities starting to flow, the effects of the package on aggregate demand should start to provide some support to activity fairly quickly. thus a broad range of policies are in place to foster recovery. but economic recoveries are also typically shaped by powerful internal cyclical dynamics. indeed, it appears that some of the forces that had been holding down growth are starting to abate. in particular, the recent data suggest that the multiyear contraction in home sales and new construction may be nearing an end. house prices could well continue to fall for a while, and months'supply of unsold homes will likely remain elevated for some time. at some point, however, house prices will begin to flatten out, and fears about buying into a falling market will start to wane. at the same time, the improved affordability of homeownership resulting from reduced house prices, low mortgage interest rates, and government programs ( including incentives

to lag global demand. these problems have been exacerbated to some extent by a systematic underprediction of demand and overprediction of productive capacity for a number of key commodities, notably oil. further analysis of the range of aggregate and idiosyncratic determinants of commodity prices would be fruitful. i have only mentioned a few of the issues raised by commodity price behavior for inflation and monetary policy. here are a few other questions that researchers could usefully address : first, how should monetary policy deal with increases in commodity prices that are not only large but potentially persistent? second, does the link between global growth and commodity prices imply a role for global slack, along with domestic slack, in the phillips curve? finally, what information about the broader economy is contained in commodity prices? for example, what signal should we take from recent changes in commodity prices about the strength of global demand or about expectations of future growth and inflation? the role of labor costs in price setting basic microeconomics tells us that marginal cost should play a central role in firms'pricing decisions. and, notwithstanding the effects of changes in commodity prices on the cost of production, for the economy as a whole, by far the most important cost is the cost of labor. over the past decade, formal work in the modeling of inflation has treated marginal cost, particularly the marginal cost of labor, as central to the determination of inflation. 2 however, the empirical evidence for this linkage is less definitive than we would like. 3 this mixed evidence is one reason that much phillips curve analysis has centered on price - price equations with no explicit role for wages. 4 problems in the measurement of labor costs may help explain the absence of a clearer empirical relationship between labor costs and prices. compensation per hour in the nonfarm business sector, a commonly used measure of labor cost, displays substantial volatility from quarter to quarter and year to year, is often revised significantly, and includes compensation that is largely unrelated to marginal costs – for example, exercises ( as opposed to grants ) of stock options. these and other problems carry through to the published estimates of labor's share in the nonfarm business sector – the proxy for real marginal cost that is typically used in empirical work. a second commonly used measure of aggregate hourly labor compensation, the employment cost index, has its own set of drawbacks as a measure of marginal cost. indeed, these two compensation measures not infrequently generate conflicting signals