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A New Keynesian Model with Robots: Implications for Business Cycles and Monetary Policy

  • Tsu-ting Tim LinEmail author
  • Charles L. Weise
Article
  • 7 Downloads

Abstract

This paper examines the effects of labor-replacing capital, referred to as robots, on business cycle dynamics using a New Keynesian model with a role for both traditional and robot capital. This study finds that shocks to the price of robots have effects on wages, output, and employment that are distinct from shocks to the price of traditional capital. Further, the inclusion of robots alters the response of employment and labor’s share to total factor productivity and monetary policy shocks. The presence of robots also weakens the correlation between human labor and output and the correlation between human labor and labor’s share. The paper finds that monetary policymakers would need to place a greater emphasis on output stabilization if their objective is to minimize a weighted average of output and inflation volatility. Moreover, if policymakers have an employment stabilization objective apart from their output stabilization objective, they would have to further focus on output stabilization due to the deterioration of the output-employment correlation.

Keywords

Robotization Labor’s share of income Monetary policy Business cycle fluctuations 

JEL

E22 E24 E25 E32 E52 

Notes

Supplementary material

11293_2019_9613_MOESM1_ESM.pdf (279 kb)
(PDF 278 KB)

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Copyright information

© International Atlantic Economic Society 2019

Authors and Affiliations

  1. 1.Gettysburg CollegeGettysburgUSA

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