Central banks may need to change their approach to monetary policies as new technologies reshape the world economy, according to the 2018 Barclays Equity Gilt Study on Tuesday.
Artificial intelligence and other technological innovations have created challenges for policymakers given the impact on wages and inflation, said Barclays' head of economics research, Christian Keller.
Speaking at the presentation of the bank’s annual study in London, Keller said wages in certain industries remain muted because the automation of some jobs has lowered the skills set required.
For instance, wages of truck drivers in the US have fallen in real terms over the years despite a continued demand for jobs.
The introduction of power steering, cruise control and automatic braking has made it easier to drive and brought down the skills needed to become a truck driver.
They are now facing a new threat to the industry – driverless cars – with Telsa Inc (NASDAQ:TSLA) and Google (NASDAQ:GOOG) among those in the race to launch self-driving technology.
Job creation remains strong in major economies
But don’t worry, robots are not replacing jobs just yet.
Keller said major economies are continuing to create millions of jobs and history shows that markets adapt to technological innovations.
“Old industries disintegrate… but new ones come along to create new jobs,” he said.
Another challenge is the impact of advancements in technology on inflation.
New technologies affect prices by creating more competition and lowering production costs through efficiency gains and automation.
The Amazon effect
Keller pointed to the “Amazonification”, or the Amazon (NASDAQ:AMZN) effect, on markets. That is, the shift towards e-commerce, which has made it easier for start-ups and small firms to operate.
In turn, that creates more competition, leading companies to bring down prices to lure in consumers.
Central banks may need to create more flexible targets for inflation in future, Keller suggested.
Rethinking GDP measure
He also said the measure of gross domestic product may also need to change to incorporate digitised goods or services.
Digitised goods and services, such as Facebook and Instagram, are free so are excluded from GDP.
“But just because the consumption of a digital product does not involve a monetary transition, does not automatically mean that it is of zero value to the consumer, “the study said.
“However, capturing the value of digital products is complicated by their characteristics: they are often non-excludable, i.e. once on the internet it is difficult to exclude anyone from consuming them, and they a non-rival as their consumption by one agent does not affect their consumption by others.