A New Keynesian Model with Robots: Implications for Business Cycles and Monetary Policy

37 Pages Posted: 6 Nov 2017 Last revised: 17 Jun 2018

See all articles by Tsu-ting Tim Lin

Tsu-ting Tim Lin

Gettysburg College

Charles L. Weise

Gettysburg College - Department of Economics

Date Written: June 10, 2018

Abstract

This paper examines the effects of labor-replacing capital, which we call robots, on business cycle dynamics using a New Keynesian model with a role for both traditional and robot capital. We find that shocks to the price of robots have effects on output, employment, wages, and labor's share of income that are distinct from shocks to the price of traditional capital. In addition, the inclusion of robots alters the response of employment and labor's share to a variety of shocks and weakens the correlation between human labor and output, as well as the correlation between output and labor's share. Our results are robust to the choice of money policy parameter. Moreover, a more activist monetary policy always results in a stronger negative correlation between output and labor's share and a weaker positive correlation between output and hours in the presence of robot capital.

Keywords: Robotization, labor's share of income, monetary policy, business cycle fluctuations

JEL Classification: E22, E24, E25, E32, E52

Suggested Citation

Lin, Tsu-ting and Weise, Charles L., A New Keynesian Model with Robots: Implications for Business Cycles and Monetary Policy (June 10, 2018). Available at SSRN: https://ssrn.com/abstract=3064229 or http://dx.doi.org/10.2139/ssrn.3064229

Tsu-ting Lin (Contact Author)

Gettysburg College ( email )

United States

HOME PAGE: http://public.gettysburg.edu/~tlin/

Charles L. Weise

Gettysburg College - Department of Economics ( email )

United States

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