Monetary and Fiscal Policies for Productivity Growth

As highlighted by Draghi’s report (Draghi, 2014), reviving productivity growth is one of the most important challenges for the European Union. Recent advances in artificial intelligence and clean energy technologies have the potential to boost productivity, but also to cause disruptions in economic activity. How should we design macroeconomic policies to ensure that these new technologies deliver higher productivity and widespread welfare gains?

This course introduces state of the art theoretical frameworks and empirical evidence to understand the relationship between monetary and fiscal policies and productivity growth, a relatively unexplored but crucial field of research. More precisely, we will address how monetary and fiscal policies should manage the green transition, the challenges to employment posed by AI and other automation technologies, and the potential barrier to growth represented by the high stock of public debt accumulated in most advanced economies, and the risk of fiscal stagnation.

It is intended for students, researchers, and practitioners who want to become familiar with state-of-the-art theoretical and empirical tools to navigate the challenges that macroeconomic policies design will face over the next decades.

Topics covered include:

• Monetary and policies for the green transition. The phasing out of dirty technologies and development of clean ones will induce a massive process of structural transformation of our economies. This process will pose challenges both to central banks and governments. For instance, the phasing out of dirty technologies is likely to generate inflationary pressures, but a hawkish monetary policy response – by depressing aggregate demand and increasing the cost of capital – may discourage firms from adopting clean technologies. So what is the appropriate conduct of monetary policy during the green transition? What is the role of fiscal interventions, such as subsidies to the adoption of green technologies?
• Artificial intelligence, and other forms of automation technologies, may boost productivity growth, but also displace workers and create technological unemployment. How should central banks and fiscal authorities navigate this trade-off?
• Most advanced economies have accumulated large stocks of public debt. To ensure debt sustainability, governments are likely to introduce distortionary taxes and cut on public investment, thus harming productivity productivity growth. On the other hand, low productivity growth increases the public debt to GDP ratio, calling for further fiscal adjustments to ensure debt sustainability. We will see that this mechanism may push economies into a state of fiscal stagnation, characterized by high debt, high fiscal distortions and low growth. We will discuss policy options to avoid or exit fiscal stagnation, as well as implications for debt sustainability and the EU fiscal rules.