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Joe Hazell
@JADHazell
@LSEEcon assistant prof, macro
Joined December 2012
1.9K Following    3.8K Followers
Delighted to get the Lukas Freund treatment for one of our papers! Read on to learn about how financial markets are pricing productivity gains from AI.
One of my favorite papers at the NBER SI so far: The Macroeconomic Effect of AI: Sizing the Software Engineering Channel by Blumenfeld - @JADHazell - @ChenLian92 - Schaab. (link below) ❓Big question: what are the effect of AI on software engineering productivity and ultimately on GDP? 💡 Key idea: let's infer this from stock prices. Concretely, firms that rely more heavily on software engineers should benefit disproportionately from AI advances. Stock prices should reflect this: firms with higher software engineering intensity should exhibit higher stock return sensitivity to an AI index. The magnitude of this cross-sectional relationship, i.e. how steeply stock return sensitivity to the AI index rises with software engineering intensity, is informative about the size of the underlying AI-induced software engineering productivity growth. The paper carefully develops and implements this idea, using stock prices + Revelio payroll data, along with a model that maps the cross-sectional relationship into SWE productivity and GDP. ➕ 2-and-a-half major advantages of this methodology: (1) Stock prices capitalize the entire expected future path of AI-driven productivity gains - not only the improvements delivered by today's tools. (2) The estimates can be updated in real time, incorporating new AI-related information. (3) The approach side-steps the difficult question of how to aggregate from task-level gains to overall software engineering productivity gains. (Of course, this challenge still looms big in the background--it's just ~left to market participants to solve.) Of course, the approach works only as well as financial markets can price AI-related information - it inherits mis-pricing due to over-reaction, general exuberance, etc. As Joe put in his fantastic talk: "possibly wrong, hopefully useful". Very exciting and, imho, useful work.
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