Andrew Bailey gave an interesting speech www.bankofengland.co.uk/speech/2022/july/andrew-bailey-speech-at-omfif-the-economic-landscape, imo raising an important question: besides traditional focus on labor market and inflation, shall central banks take into account investment and productivity growth? Here's one reason why the answer may be yes.

In conventional thinking, and in New Keynesian model, changes in aggregate demand show up in inflation and labor market indicators. Weak aggregate demand, for instance, is traditionally associated with low inflation and high unemployment. But is it always true? Not necessarily.

Weak aggregate demand, in fact, may result into low business investment and weak productivity, while having little impact on inflation and employment. This happens when low demand induces firms to de-automate production, and switch to low productivity labor-intensive technologies

@MESandbu describes this possibility in his brilliant book press.princeton.edu/books/hardcover/9780691204529/the-economics-of-belonging, while Pessoa and @johnvanreenen suggest that this effect was at play in the UK in the aftermath of the 2008 crisis onlinelibrary.wiley.com/doi/abs/10.1111/ecoj.12146.

More recently, in work with @mw_econ we formalize this idea crei.cat/wp-content/uploads/2021/12/MPAA.pdf youtu.be/132capCtB2Q. In our theory, under certain circumstances, monetary interventions may mainly affect firms' use of automation technologies and labor productivity.

The presence of this automation effect of monetary policy suggests that, perhaps, variables such as business investment and labor productivity should play a bigger role in shaping monetary policy decisions than what traditional models, such as the NK one, imply.

These considerations also point toward supply side effects of monetary interventions (@IrvingSwisher www.employamerica.org/blog/the-first-dose-of-supply-side-damage-is-here-the-dark-side-of-fed-and-fina...). A monetary contraction, for instance, may cool down inflation in the short run, but at the expenses of lower productivity in the medium run.

So shall central banks put more weight on firms' investment, technology use, and productivity when setting monetary policy? Perhaps. For sure, there is a lot of research to be done on this front.