FRANKFURT, Nov 7 (Reuters) – Deutsche Bundesbank President Joachim Nagel is exploring the potential use of artificial intelligence and is currently using the technology to check how his speeches are received and whether there is an appropriate balance between dovs and hawks, he said on Friday.
Some investment banks are building mass language-modeling AI tools into central bank publications such as speeches, interviews, and press conferences to gauge the underlying tone of debates, in hopes of predicting policy decisions before others.
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UBS says it has built a data set spanning more than 20 years and argues that changes in tone from the ECB and the US Federal Reserve can lead to changes in policy rates and market repricing, especially during tightening cycles, sometimes by months.
“When I give a speech, it is not prepared by AI, but I check it with an AI tool that I have developed to see how the message is being received,” Nagel said at a Bundesbank event.
“Is it a hawkish speech or a dovish speech?” Nagel said. “Because when we say something as central bankers, it affects the market, so we have to be very careful about how we say it because it can move the market.”
Nagel is generally seen as one of the more hawkish members of the ECB’s executive board, and his comments will be closely watched given Germany’s outsized role in the euro zone economy and because a shift on the hawkish side of the policy debate could signal a shift in the balance of power.
Nagel has long argued that the bar for further policy easing is high because inflation is likely to remain at the ECB’s 2% target and the risks are balanced.
The central bank has kept policy unchanged since June, and the market sees the possibility of further interest rate cuts this year as almost zero.
Mr. Nagel advocated further use of AI in central banking operations, and said there is potential for further use in the immediate future, such as in banking supervision.
Report by Balazs Koranyi. Editing: Andrew Cawthorn
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