Macroeconomic Policies for AI

Martin Wolf and Luca Fornaro

No 1576, Working Papers from Barcelona School of Economics

Abstract: We provide a macroeconomic framework to study monetary and fiscal policies for AI. Advances in AI expand firms' ability to automate production. While higher automation boosts productivity and potential output, it also reduces workers' share of income. Since workers have a high propensity to consume, advances in AI may depress aggregate demand and lead to a slump. Expansionary monetary policy can convert an AI slump into an AI boom, but in doing so it faces two challenges. In the short run, AI worsens the inflation-employment trade off faced by the central bank. In the medium run, monetary policy may be constrained by the zero lower bound, since weak demand lowers the natural rate. Employment subsidies and cuts in labor taxes can usefully complement monetary policy, by reducing firms' cost of labor and inflation, as well as supporting workers' income and aggregate demand.

Keywords: AI; artificial intelligence; automation; endogenous productivity; inflation; liquidity traps; monetary policy; wages (search for similar items in EconPapers)
JEL-codes: E32 E43 E52 O31 O42 (search for similar items in EconPapers)
Date: 2026-05
References: Add references at CitEc
Citations:

Downloads: (external link)
https://bw.bse.eu/wp-content/uploads/1576.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bge:wpaper:1576

Access Statistics for this paper

More papers in Working Papers from Barcelona School of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Bruno Guallar ().