What Machines Taking over Pricing Means for Central Banks
Algorithmic and AI‑driven pricing is rapidly reducing the cost of price changes, halving the average lifespan of US retail prices and accelerating the frequency of online adjustments. Empirical studies show faster pass‑through of exchange‑rate and commodity shocks, while margin effects vary across sectors, with gasoline retailers seeing up to a 15% increase. The heightened price flexibility could steepen the Phillips curve, altering the trade‑off between inflation and output for monetary policymakers. Central banks therefore must adopt high‑frequency, granular price monitoring to capture heterogeneous pass‑through and its impact on inflation expectations.
A Public-Private Partnership: Central Banks as a Funding Backstop
The authors analyze the Bank of England’s 2012 Funding for Lending Scheme (FLS) and find that central‑bank liquidity acts as a backstop that improves private wholesale funding conditions rather than merely substituting for them. By lowering banks’ wholesale funding costs,...