First, we have provided access to central bank liquidity at very favourable terms and over long tenors to help maintain the supply of credit from the banking sector. To this end, we have adjusted the terms and conditions of our targeted longer-term refinancing operations (TLTRO III), which strengthen the incentives for banks to lend to the real economy. For a year, banks will be able to borrow at negative rates, which can be as low as –1% on the condition that they lend to the economy. Largely in response to this recalibration, we have seen a very high take-up by banks. And second, we have launched the pandemic emergency purchase programme (PEPP) to ensure the smooth transmission of our monetary policy and to ease the overall monetary policy stance thereby helping to offset the downward impact of the pandemic on the projected path of inflation. The PEPP, launched with an initial envelope of € billion in March, was increased by € billion in June to a total of € billion. We will conduct net asset purchases under the PEPP until at least the end of June 2021 and, in any case, until the Governing Council judges that the coronavirus crisis phase is over. In the current environment of elevated uncertainty, the Governing Council will carefully assess all incoming information, including developments in the exchange rate, with regard to its implications for the medium-term inflation outlook.
However, mismatches between the skills of the current workforce and those required by the new technologies or other substantial frictions to workers changing role could cause the equilibrium unemployment rate to rise alongside any increase in unemployment – particularly if the speed of adoption of new technologies is faster than in the past. That would shift the Phillips Curve up, reducing the disinflationary effects of automation. At present, there is little evidence to go on to judge the likely size and persistence of any increasing in structural unemployment. Monetary policy makers will need to remain alert to this possibility, updating their assessment as the transition occurs. The experience of the 1970s shows that mistakenly ascribing a structural pickup in unemployment to cyclical factors can lead to the wrong macroeconomic policy setting, with long-lasting adverse effects. A more automated world could also affect inflationary pressures through flattening the Phillips curve. The threat of robot substitutes could weaken workers’ bargaining power. And advances in artificial intelligence and similar technologies could increase companies’ ability to learn about their competitors’ marginal costs and leading to greater synchronisation of price changes across companies. Already, there is evidence that online retailers adjust prices more frequently than those on the high street, while being less likely to vary prices by location. 39  Conclusion While the Fourth Industrial Revolution has the potential to transform the economy, the challenges it presents for monetary policy makers are in many ways not new.