Artificial intelligence is not ready to replace structural models for central bank policy making, according to the Monetary Authority of Singapore’s chief economist.
In a speech at a workshop this week, MAS deputy managing director Edward Robinson conceded that central banks have had to answer “difficult questions about our collective failure to foresee the persistence of inflation after the pandemic, which has in turn called into question the usefulness of our models”.
While AI has been touted as a potential tool to help improve modelling, Robinson counselled caution, suggesting that LLMs are “not yet capable of providing credible explanations for their own predictions”.
“On the whole, AI models currently lack the “clarity of structure” that makes structural models useful to policymakers. To quote former Fed Governor Laurence Meyer, model-based forecasting needs to “start with a paradigm and end with a story”. Without the ability to articulate a vision of how the economy works or discriminate between competing narratives, AI models cannot yet replace structural models at central banks.”
For Robinson, the best way to incorporate AI techniques into central bank modelling toolkits is to use them in satellite models that complement core structural models.
However, central banks do need to prepare for GenAI’s evolution as a “general purpose technology” but it may require “some enlightened intervention upstream to influence its transitional path”.
