Robot Adoption and Inflation Dynamics

Automation alters inflation dynamics by reducing the slope of the Phillips curve. The paper presented in this Research Seminar establishes this finding in a New Keynesian model with search frictions and robot adoption. In this setting, automation has two main effects. First, it shrinks workers’ bargaining power, thus dampening the sensitivity of wages to unemployment. Second, it reduces the share of labor in value added, thus muting the pass-through from wages to prices. Both channels lead to a flatter price Phillips curve. The authors validate these mechanisms in the data. To uncover the causal effect of automation on inflation dynamics, they estimate regional Phillips curves and leverage differences in robot adoption across U.S. metropolitan areas.