Monetary policy using AI: Artificial intelligence could support the monetary authorities of the European Central Bank (ECB) in processing large amounts of economic data and thus help determine the best monetary policy approach. In a blog post published on Thursday, the ECB said it is already scrutinizing this new technology.
“From playing chess to piloting drones, machines have become much smarter and play a role in many areas of our lives,” Chief Services Officer Myriam Moufakkir wrote in the post. “So why not use artificial intelligence for central bank operations?” She mentioned three application areas: data preparation, analysis of inflation dynamics and banking supervision.
One area of application is the collection and processing of data from more than ten million banks and companies. The ECB is now using machine learning techniques to get the wealth of data under control. This means, among other things, that the classification process can be automated. “We need these classifications to have the right data to make our decisions,” says Moufakkir. This way, the monetary authorities could concentrate on analyzing and interpreting the information.
Calculation of inflation
The ECB also wants to gain an even deeper insight into inflation dynamics and the pricing behavior of economic actors. The central bank can collect a huge amount of real-time data on individual product prices using web scraping and machine learning. “One of the challenges, however, is that the data collected is largely unstructured and not directly suitable for calculating inflation,” Moufakkir said. The ECB is therefore investigating how AI can be used to structure such data and improve the accuracy of the analysis.
Banking supervision and candidate checking
According to Moufakkir, banking supervision is a third area. This includes the creation of the Athena platform, which uses natural language processing methods to quickly filter and compile information from collected text documents. This allows supervisors to understand relevant information faster, instead of spending a lot of time searching for it.
In 2022 it was announced that the ECB banking supervisor wanted to use an AI tool for natural language processing in its so-called fit and proper assessments, named after a mythological Viking god Heimdall. Fit-and-proper concerns supervisory assessments of the professional qualifications and personal reliability of candidates for management positions in supervised institutions.
“Are we aware of the risks”
Nevertheless, the ECB is monitoring the dangers of AI. “Of course we are cautious about the use of AI and are aware of the risks it entails,” says Moufakkir. The central bank deals with issues such as data security, legal restrictions and ethical questions. According to Moufakkir, the ECB still wants to conduct further research into the possibilities that AI offers. “The above examples are just the tip of the iceberg.”
Source: Krone
I’m Ben Stock, a journalist and author at Today Times Live. I specialize in economic news and have been working in the news industry for over five years. My experience spans from local journalism to international business reporting. In my career I’ve had the opportunity to interview some of the world’s leading economists and financial experts, giving me an insight into global trends that is unique among journalists.
