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

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  • Tsu-ting Tim Lin

    (Gettysburg College)

  • Charles L. Weise

    (Gettysburg College)

Abstract

This paper examines the effects of labor-replacing capital, referred to as robots, on business cycle dynamics using a New Keynesian model with a role for both traditional and robot capital. This study finds that shocks to the price of robots have effects on wages, output, and employment that are distinct from shocks to the price of traditional capital. Further, the inclusion of robots alters the response of employment and labor’s share to total factor productivity and monetary policy shocks. The presence of robots also weakens the correlation between human labor and output and the correlation between human labor and labor’s share. The paper finds that monetary policymakers would need to place a greater emphasis on output stabilization if their objective is to minimize a weighted average of output and inflation volatility. Moreover, if policymakers have an employment stabilization objective apart from their output stabilization objective, they would have to further focus on output stabilization due to the deterioration of the output-employment correlation.

Suggested Citation

  • Tsu-ting Tim Lin & Charles L. Weise, 2019. "A New Keynesian Model with Robots: Implications for Business Cycles and Monetary Policy," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 47(1), pages 81-101, March.
    • Handle: RePEc:kap:atlecj:v:47:y:2019:i:1:d:10.1007_s11293-019-09613-w
    DOI: 10.1007/s11293-019-09613-w
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    References listed on IDEAS

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    Cited by:

    1. Pablo Casas & José L. Torres, 2023. "Automation, automatic capital returns, and the functional income distribution," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 32(1), pages 113-135, January.
    2. Stähler, Nikolai, 2021. "The Impact of Aging and Automation on the Macroeconomy and Inequality," Journal of Macroeconomics, Elsevier, vol. 67(C).
    3. Casas, Pablo & Torres, José L., 2022. "Government size and automation," MPRA Paper 115271, University Library of Munich, Germany.
    4. Germana Bottone, 2018. "A tax on robots? Some food for thought," Working Papers wp2018-3, Ministry of Economy and Finance, Department of Finance.

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