From Servers to Rates: AI, ICT Capital, and the Natural Rate

Giovanni Melina and Stefania Villa

No 2025/224, IMF Working Papers from International Monetary Fund

Abstract: This paper investigates the macroeconomic implications of the rising wave of investment in information and communication technology (ICT)—including AI-related hardware and software—in the U.S. economy. The analysis uses a structural macroeconomic model that treats ICT as a distinct type of capital and explores the degree to which ICT complements or substitutes for labor. The findings reveal three key insights. First, labor and ICT have historically been only moderately substitutable. Second, technological innovations that make it easier to turn ICT investment into productive capital act like demand shocks, boosting output and inflation. Third, given the uncertainty surrounding the interaction between AI-driven ICT capital and labor, the paper presents scenarios of possible trajectories for ICT investment under alternative assumptions. When ICT tends to complement labor, the economy experiences strong gains in output, but also inflationary pressure; the natural interest rate increases, requiring tighter monetary policy. Conversely, if ICT tends to replace labor, the same ICT investment path warrants a looser monetary policy stance.

Keywords: Artificial Intelligence; Generative AI; ICT investment; Natural rate of interest; Monetary policy; DSGE modeling; ict capital; comparing ict; IMF working papers; rate of interest; Inflation; Wages; Consumption; Labor markets; Global (search for similar items in EconPapers)
Pages: 43
Date: 2025-10-31
New Economics Papers: this item is included in nep-cba, nep-dge, nep-ict and nep-mon
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