## Intangible Investment and Low Inflation: A Framework and Some Evidence

_IMF Working Papers, September 18, 2020_

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## Bibliographic details
- Authors: Subir Lall, Li Zeng
- Published: September 18, 2020
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781513557335.001

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### Overview
- Title: Intangible Investment and Low Inflation: A Framework and Some Evidence
- Authors: Subir Lall, Li Zeng
- Date: September 18, 2020
- Abstract summary:
  - Intangible investment is growing as a share of economic activity.
  - A simple framework incorporates the distinguishing characteristic of intangible investment: generally greater scalability and lower marginal costs than tangible investment.
  - Evidence is shown that this may have contributed to more elastic aggregate supply in recent years, consistent with lower inflation and a flattening of the Phillips curve.
  - The framework highlights channels through which technological change, a large constituent of intangible investment, may be leading to wage stagnation and greater market concentration.

### Key Findings
- Intangible investment growth:
  - Intangible investment is growing as a share of economic activity.
- Supply elasticity and inflation:
  - Greater scalability and lower marginal costs associated with intangible assets may have contributed to more elastic aggregate supply in recent years.
  - Increased supply elasticity is consistent with lower inflation and a flattening of the Phillips curve.
- Labor market and market structure effects:
  - Technological change, as a large component of intangible investment, may be leading to wage stagnation.
  - Technological change may also be contributing to greater market concentration.

### Framework and Mechanisms
- Distinguishing characteristic of intangible investment:
  - Generally greater scalability.
  - Lower marginal costs than tangible investment.
- Channels emphasized:
  - Impact on aggregate supply elasticity via scalability and marginal costs.
  - Impact on wages through technological change.
  - Impact on market concentration through returns to scale and technology-driven market dynamics.
- Analytical context and concepts:
  - AS-AD framework, aggregate supply curve, returns to scale, output gap.

### Evidence and Implications
- Empirical relationship described:
  - Evidence is presented that links the rise of intangible investment to more elastic aggregate supply, lower inflation, and a flatter Phillips curve.
- Policy-relevant implications:
  - Effects on inflation dynamics and monetary policy: lower inflation and a flattening Phillips curve have implications for inflation targeting and monetary policy design.
  - Labor-market and competition policy considerations: wage stagnation and greater market concentration suggest relevance for labor and competition policies.
- Subjects and keywords emphasized in the paper:
  - Subjects: Import prices, Inflation, Inflation targeting, Intangible capital, Labor, Monetary policy, National accounts, Output gap, Prices, Production
  - Keywords: aggregate supply supply curve, AS-AD framework, economy, Global, import price inflation, Import prices, inflation, inflation target, Inflation targeting, Intangible capital, intangible investment, investment, market concentration, Output gap, returns to scale, Technological change, unemployment, WP

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_Source: https://www.imf.org/en/publications/wp/issues/2020/09/18/intangible-investment-and-low-inflation-a-framework-and-some-evidence-49739_