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Monetary policy in the age of automation

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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 ination 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.

Suggested Citation

  • Luca Fornaro & Martin Wolf, 2021. "Monetary policy in the age of automation," Economics Working Papers 1794, Department of Economics and Business, Universitat Pompeu Fabra, revised Nov 2021.
  • Handle: RePEc:upf:upfgen:1794
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    Cited by:

    1. Huang, Yiping & Li, Xiang & Qiu, Han & Yu, Changhua, 2022. "BigTech credit and monetary policy transmission: Micro-level evidence from China," IWH Discussion Papers 18/2022, Halle Institute for Economic Research (IWH).

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    More about this item

    Keywords

    monetary policy; automation; fiscal expansions; hysteresis; liquidity traps; secular stagnation; endogenous productivity; wages;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O42 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Monetary Growth Models

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