This was something that was sorely lacking in the wake of COVID-19 and Russia’s invasion of Ukraine, when the US Federal Reserve, the ECB and other major central banks failed to grasp market strength. global inflation surge.
New AI models should reduce the risk of repeats, although their untested nature and the fact that they can “hallucinate” mean they should not become rate-fixing robots, said Cecilia Skingsley, a senior BIS official.
“We like to hold humans accountable,” the former Swedish central banker said, referring to the crucial role borrowing costs play in society and the need for judgment.
“So I don’t really see a future in which an AI sets (interest) rates.”
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The BIS, often called the central bank of central bankers because of the joint work it does, already has eight projects involving AI. Hyun Song Shin, research director and top economic adviser, said policymakers should not view this as “something magical” but said it could help find needles in haystacks and identify vulnerabilities in financial systems.
This technology also has the potential to radically transform labor markets, with implications for productivity and economic growth. Its widespread adoption could prompt companies to adjust prices more quickly in response to macroeconomic changes, which would impact inflation.
The BIS warned that AI also introduces risks, such as new types of cyberattacks, and can amplify existing risks, such as herd behaviour, bank runs and financial asset sales.
“The call to action for central banks is to foster a community of practice,” Shin said. “Sharing experience, sharing best practices, but also sharing the data and the models themselves.”
