• May 22
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  Thursday 22 May 2025, 10:30 AM

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Research Seminar - Oliver Pfäuti (University of Texas at Austin) - Monetary Policy and Business Cycles in the Data Economy

Co-authors: Carl-Christian Groh (University of Bonn) and Farzad Saidi (University of Bonn)

Abstract
We study how firms’ access to (big) data shapes the transmission of monetary policy to their capital investment and their exposure to cyclical fluctuations. Using employer-employee data of job characteristics to quantify firms’ data intensity, we show that data-intensive firms adjust their capital investment more strongly in response to monetary policy shocks, particularly to expansionary shocks. Within the set of firms with access to data, the market shares of firms with superior access to data are more procyclical. To understand these, we develop a tractable theoretical framework in which data enters investment decisions by favorably affecting a firm’s productivity and reducing its volatility. Data accumulates endogenously through a data feedback loop, i.e., firms that produce more accumulate more data. The model predicts that firms with access to superior data respond more strongly to aggregate fluctuations if and only if the data feedback loop is sufficiently strong. A strong data feedback loop thus renders the effectiveness of monetary policy procyclical. The model uncovers potential unintended consequences of digital markets regulation, such as the EU GDPR, as those policies weaken the effectiveness of monetary policy.

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