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

IMF Working Papers, October 31, 2025

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Investigates macroeconomic implications of rising investment in information and communication technology (ICT)—including AI-related hardware and software—in the U.S. economy.
Uses a structural macroeconomic model that:
- Treats ICT as a distinct type of capital.
- Explores the degree to which ICT complements or substitutes for labor.

Three key insights:
- Labor and ICT have historically been only moderately substitutable.
- Technological innovations that make it easier to turn ICT investment into productive capital act like demand shocks, boosting output and inflation.
- Given uncertainty about the interaction between AI-driven ICT capital and labor, different ICT investment trajectories produce materially different macroeconomic outcomes.

When ICT tends to complement labor:
- The economy experiences strong gains in output.
- Inflationary pressure increases.
- The natural interest rate increases, implying a need for tighter monetary policy.
When ICT tends to replace labor:
- The same ICT investment path warrants a looser monetary policy stance.

Monetary policy stance should account for the evolving interaction between ICT capital and labor:
- If evidence points to complementarities, policymakers should prepare for upward pressure on the natural rate and tighter policy.
- If evidence points to substitution, policymakers may need to consider a relatively looser stance.
Recognition that technological innovations that increase the productivity of ICT act similarly to demand shocks is central for inflation and output forecasting.