AI's long-term influence on economy, monetary policy
Riksbank Deputy Governor Aino Bunge discussed how artificial intelligence can influence the economy and monetary policy in the longer term. Speaking at the 'Morgondagens Samhälle' conference, she explored historical parallels and current effects.
History's lesson on job creation
AI is a general-purpose technology (GPT) like the steam engine or internet, affecting society broadly.
Historically, technological innovations aimed to replace human labor, leading to concerns about unemployment.
However, total employment has not declined.
This paradox is explained by automation leading to productivity gains and increased prosperity, which in turn creates demand for new jobs in new sectors.
For instance, 60 percent of US occupations today did not exist in 1940.
While transitions can be difficult for individuals, new jobs emerge over time.
AI's dual impact on policy rates
Bunge outlined four mechanisms for AI's impact on monetary policy.
First, a productivity boost could lower costs and inflation, suggesting lower policy rates.
Second, increased productivity growth typically pushes up the neutral interest rate, arguing for higher policy rates, though widening income inequality could counteract this.
Third, AI-related investment demand could drive up inflation and policy rates in the short term.
Fourth, there is a risk of an AI-related bubble, similar to the dot-com boom, which could affect financial stability.
A nuanced view for central bankers
Bunge's speech provides a crucial framework for central banks to analyze AI's complex economic effects.
It highlights both inflationary and disinflationary pressures, underscoring the need for data-dependent policy responses.
This pragmatic approach, leveraging historical context and multiple transmission channels, is vital for navigating the evolving technological landscape.