Monetary Policy in the Age of Automation

53 Pages Posted: 27 Sep 2021

See all articles by Martin Wolf

Martin Wolf

University of Vienna - Department of Economics; Centre for Economic Policy Research (CEPR); University of St. Gallen; University of Bonn

Luca Fornaro

Universitat Pompeu Fabra - Centre de Recerca en Economia Internacional (CREI); Barcelona Graduate School of Economics (Barcelona GSE)

Date Written: August 1, 2021

Abstract

We provide a framework in which monetary policy affects firms' automation decisions (i.e. how intensively capital and labor are used in production). This new feature has far-reaching consequences for monetary policy. Monetary expansions can increase output by inducing firms to invest and automate more, while having little impact on inflation and employment. A protracted period of weak demand might translate into less investment and de-automation, rather than into deflation and involuntary unemployment. Running the economy hot, through expansionary monetary and fiscal policies, may have a positive long run impact on labor productivity and wages. Technological advances that increase the scope for automation may give rise to persistent unemployment, unless they are accompanied by expansionary macroeconomic policies.

Keywords: automation, endogenous productivity, fiscal expansions, hysteresis, liquidity traps, monetary policy, secular stagnation, wages

JEL Classification: E32, E43, E52, O31, O42

Suggested Citation

Wolf, Martin and Wolf, Martin and Wolf, Martin and Wolf, Martin and Fornaro, Luca, Monetary Policy in the Age of Automation (August 1, 2021). CEPR Discussion Paper No. DP16416, Available at SSRN: https://ssrn.com/abstract=3928695

Martin Wolf (Contact Author)

University of Vienna - Department of Economics ( email )

Oskar-Morgenstern-Platz 1
Vienna, Vienna 1180
Austria

University of St. Gallen ( email )

Bodanstrasse 8
SIAW-HSG
St.Gallen, 9000
Switzerland

University of Bonn ( email )

Regina-Pacis-Weg 3
Postfach 2220
Bonn, D-53012
Germany

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Luca Fornaro

Universitat Pompeu Fabra - Centre de Recerca en Economia Internacional (CREI) ( email )

Ramon Trias Fargas, 25-27
Barcelona, 08005
Spain

Barcelona Graduate School of Economics (Barcelona GSE) ( email )

Ramon Trias Fargas, 25-27
Barcelona, Barcelona 08005
Spain

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