The Economics of AI Inference: Inflation Dynamics, Welfare Costs, and Optimal Monetary Policy under the Inference-Cost Phillips Curve

Excerpt

arXiv:2605.20281v2 Announce Type: replace-cross Abstract: We develop a unified microeconomic and monetary theory of artificial intelligence inference costs and their pass-through to inflation, welfare, and optimal monetary policy. We introduce the Inference-Cost Phillips Curve (ICPC), an augmented New Keynesian Phillips curve in which firm-level marginal costs of producing differentiated goods include a non-trivial AI inference component lambda-bar, and prove a closed-form structural slope kappa