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It Matters Who Gets Automated: Monetary Policy in an AI Economy

Author

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  • Alina Ermolaeva
  • Hannah Magdalena Seidl

Abstract

Does artificial intelligence (AI) change the transmission of monetary policy? We develop a two-sector heterogeneous-agent New Keynesian model with task-based production, in which AI automates part of the work in one exposed sector and leaves the other shielded. In the AI steady state, the economy holds more capital, and labor income shifts from the exposed workers, who lose through hours, to the shielded workers, who gain through higher wages. We then compare the same rate cut across the two economies. It stimulates macroeconomic aggregates more in the AI economy. The deeper capital stock delivers a larger initial stimulus. Investment responds as strongly as without AI, but on a permanently larger base, so the same response means more demand. Machines absorb part of the exposed sector’s share of that demand. The shielded sector’s share becomes labor income, which is spent in turn. It matters who gets automated: the amplification of monetary policy in an AI economy runs through the workers AI does not replace.

Suggested Citation

  • Alina Ermolaeva & Hannah Magdalena Seidl, 2026. "It Matters Who Gets Automated: Monetary Policy in an AI Economy," Discussion Papers of DIW Berlin 2184, DIW Berlin, German Institute for Economic Research.
    • Handle: RePEc:diw:diwwpp:dp2184
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    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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