Macroeconomic Policies for AI

• Authors: Luca Fornaro and Martin Wolf
• BSE Working Paper: 1576 | May 2026
• Keywords: wages, monetary policy, liquidity traps, automation, inflation, endogenous productivity, artificial intelligence, AI
• JEL codes: E32, E43, E52, O31, O42

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.