economy
Why AI Makes Central Banking Tougher
AI is blurring the usual indicators that central bankers rely on to set policy, a new paper from the Bank for International Settlements finds.
TL;DR
- AI is a complexifier for central bankers' goals of stable prices, a strong job market, and a sound financial system.
- A new paper from the Bank for International Settlements (BIS) suggests AI is blurring the usual indicators central bankers rely on for policy.
- AI affects both the supply and demand sides of the economy, driving structural and cyclical change.
- An investment boom in AI creates demand, while a stock market boom increases consumer demand, though concerns about an AI bubble exist.
- AI may lead to job losses in the medium term and a productivity growth shock that could lower inflation.
- Central bankers face challenges in assessing the impact of AI on unobservable variables like natural rates of interest and unemployment.
- The BIS paper emphasizes the considerable uncertainty surrounding AI's effects, raising challenges for monetary policy and financial stability.
- Greater uncertainty increases the risk of policy miscalibration, potentially leading to inflation or recession.