Robots to the Rescue for Sweden’s Misunderstood Central Bankers
The last time Sweden’s Riksbank unveiled a rate decision, it sent the market into paroxysms of confusion. Currency traders panicked and the krona plunged more than 1%.
That was in April. The Riksbank, led by Governor Stefan Ingves, thought its guidance had been clear and was perplexed by the extreme reaction. Now, Nordea Bank Abp is offering its clients the benefits of artificial intelligence, taking humans out of the equation, and leaving the art of interpreting central bankers to robots.
“AI gives a bit of an outside perspective on central banks and sometimes understands things we don’t,” Kristin Magnusson Bernard, Nordea’s global head of macro research, said in an interview.
The assumption behind the technology is that humans tend to be emotional and, as a result, attached to certain outcomes for reasons that may not always be entirely rational. “We all tend to have our unconscious bias and see what we want to see,” according to Magnusson Bernard. She says that AI “can faster detect shifts in what topics are important for central banks” than your average human.
Understanding what central bankers think has never been more important as the world wonders how the greatest monetary policy experiment in history will be unwound. Magnusson Bernard, who has a quant background, and a group of AI experts at Nordea have been using machine learning since last year to analyze the Federal Reserve, the European Central Bank and Sweden’s Riksbank.
Given the experimental nature of the project, Nordea isn’t charging for the service just yet. The results of its robots’ analyses will be available on Twitter, with the promise of more central banks being added to the list over time.
Tools available to date include a so-called hawk-o-meter, which gives users a sense of how likely a central bank is to hike rates. But a word of caution, the robots haven’t yet been taught the concept of quantitative easing, so policy signals based on bond purchases get lost in translation. Nordea is working on the glitch.
“For the Fed, which is active with its rates, the hawk-o-meter may be the main measure to look at, but for the ECB or the Riksbank, one needs to also look at other measures,” Magnusson Bernard said.
©2019 Bloomberg L.P.