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Automation and Nominal Rigidities

Author

Listed:
  • Takuji Fueki

    (Director and senior economist, Institute for Monetary and Economic Studies, Bank of Japan (currently, Lecturer, Kagawa University, E-mail: fueki.takuji@kagawa-u.ac.jp))

  • Shinnosuke Katsuki

    (Economist, Institute for Monetary and Economic Studies, Bank of Japan (E-mail: shinnosuke.katsuki@boj.or.jp))

  • Ichiro Muto

    (Associate Director-General, Institute for Monetary and Economic Studies (currently, General Manager, Aomori Branch), Bank of Japan (E-mail: ichirou.mutou@boj.or.jp))

  • Yu Sugisaki

    (Economist, Institute for Monetary and Economic Studies, Bank of Japan (currently, Boston College, E-mail: sugisaki@bc.edu))

Abstract

This study examines how automation can have an impact on the effectiveness of monetary policy and inflation dynamics. We incorporate a task-based production technology into a standard New Keynesian model with two kinds of nominal rigidities (price/wage rigidity). When monetary easing raises wages, automation opportunities allow firms to substitute costly human labor with cheaper machines. This yields the automation effect of monetary policy, which increases labor productivity and magnifies the rise in real output. In turn, automation lowers real marginal costs for firms, thereby restraining the rise of inflation and flattening the Phillips curve. When prices are rigid and wages are flexible, the automation effect of monetary policy is particularly large, and the flattening of the Phillips curve is most pronounced. The automation effect also depends on the automation frontier, i.e., the remaining opportunities for automation, and a kinked Phillips curve emerges when firms face technological constraints on automation.

Suggested Citation

  • Takuji Fueki & Shinnosuke Katsuki & Ichiro Muto & Yu Sugisaki, 2023. "Automation and Nominal Rigidities," IMES Discussion Paper Series 23-E-01, Institute for Monetary and Economic Studies, Bank of Japan.
    • Handle: RePEc:ime:imedps:23-e-01
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    References listed on IDEAS

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    Cited by:

    1. Wolf, Martin & Fornaro, Luca, 2021. "Monetary Policy in the Age of Automation," CEPR Discussion Papers 16416, C.E.P.R. Discussion Papers.

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    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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