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Blinder, A. S., & Reis, R. (2005). Economic Performance in the Greenspan Era: The Evolution of Events and Ideas. In The Greenspan Era: Lessons for the Future (pp. 11-96). The Federal Reserve Bank of Kansas City.

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• TITLE: Potential Deflationary Effects of AI

  AUTHORS: Richard C. K. Burdekin

  KEYWORDS: Deflation, AI, Monetary Policy

  JOURNAL NAME: Modern Economy, Vol.17 No.5, May 26, 2026

  ABSTRACT: Even though the marginal impact of AI productivity gains is deflationary, an overall downward impact on prices would require the Fed to fail to undertake an offsetting monetary expansion. This policy offset explains why, in contrast to earlier episodes, the 1990s productivity gains did not induce deflation. A potentially novel factor today is that, if labor displacement becomes the dominant trend under AI, we could see a sustained joint increase in both unemployment and output. This might, in turn, prompt even more expansionary Fed policy—with concomitant risks for inflation rather than deflation.