IMF Working Papers

From Servers to Rates: AI, ICT Capital, and the Natural Rate

By Giovanni Melina, Stefania Villa

October 31, 2025

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Format: Chicago

Giovanni Melina, and Stefania Villa. "From Servers to Rates: AI, ICT Capital, and the Natural Rate", IMF Working Papers 2025, 224 (2025), accessed November 2, 2025, https://doi.org/10.5089/9798229028851.001

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Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

This paper investigates the macroeconomic implications of the rising wave of investment in information and communication technology (ICT)—including AI-related hardware and software—in the U.S. economy. The analysis uses a structural macroeconomic model that treats ICT as a distinct type of capital and explores the degree to which ICT complements or substitutes for labor. The findings reveal three key insights. First, labor and ICT have historically been only moderately substitutable. Second, technological innovations that make it easier to turn ICT investment into productive capital act like demand shocks, boosting output and inflation. Third, given the uncertainty surrounding the interaction between AI-driven ICT capital and labor, the paper presents scenarios of possible trajectories for ICT investment under alternative assumptions. When ICT tends to complement labor, the economy experiences strong gains in output, but also inflationary pressure; the natural interest rate increases, requiring tighter monetary policy. Conversely, if ICT tends to replace labor, the same ICT investment path warrants a looser monetary policy stance.

Subject: Inflation, Prices

Keywords: Artificial Intelligence, DSGE modeling, Generative AI, Global, ICT investment, Inflation, Monetary policy, Natural rate of interest

Publication Details

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