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Deep Reinforcement Learning in a Monetary Model

Author

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  • Mingli Chen
  • Andreas Joseph
  • Michael Kumhof
  • Xinlei Pan
  • Xuan Zhou

Abstract

We propose using deep reinforcement learning to solve dynamic stochastic general equilibrium models. Agents are represented by deep artificial neural networks and learn to solve their dynamic optimisation problem by interacting with the model environment, of which they have no a priori knowledge. Deep reinforcement learning offers a flexible yet principled way to model bounded rationality within this general class of models. We apply our proposed approach to a classical model from the adaptive learning literature in macroeconomics which looks at the interaction of monetary and fiscal policy. We find that, contrary to adaptive learning, the artificially intelligent household can solve the model in all policy regimes.

Suggested Citation

  • Mingli Chen & Andreas Joseph & Michael Kumhof & Xinlei Pan & Xuan Zhou, 2021. "Deep Reinforcement Learning in a Monetary Model," Papers 2104.09368, arXiv.org, revised Jan 2023.
  • Handle: RePEc:arx:papers:2104.09368
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    File URL: http://arxiv.org/pdf/2104.09368
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    References listed on IDEAS

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    1. Douglas Heaven, 2019. "Why deep-learning AIs are so easy to fool," Nature, Nature, vol. 574(7777), pages 163-166, October.
    2. George W. Evans, 2001. "Expectations in Macroeconomics. Adaptive versus Eductive Learning," Revue Économique, Programme National Persée, vol. 52(3), pages 573-582.
    3. Sims, Christopher A., 2010. "Rational Inattention and Monetary Economics," Handbook of Monetary Economics, in: Benjamin M. Friedman & Michael Woodford (ed.), Handbook of Monetary Economics, edition 1, volume 3, chapter 4, pages 155-181, Elsevier.
    4. Stefano Eusepi & Bruce Preston, 2018. "The Science of Monetary Policy: An Imperfect Knowledge Perspective," Journal of Economic Literature, American Economic Association, vol. 56(1), pages 3-59, March.
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    Cited by:

    1. Rui & Shi, 2021. "Can an AI agent hit a moving target?," Papers 2110.02474, arXiv.org, revised Oct 2022.
    2. Artem Kuriksha, 2021. "An Economy of Neural Networks: Learning from Heterogeneous Experiences," Papers 2110.11582, arXiv.org.
    3. Rui (Aruhan) Shi, 2021. "Learning from Zero: How to Make Consumption-Saving Decisions in a Stochastic Environment with an AI Algorithm," CESifo Working Paper Series 9255, CESifo.
    4. Qirui Mi & Zhiyu Zhao & Siyu Xia & Yan Song & Jun Wang & Haifeng Zhang, 2024. "Learning Macroeconomic Policies based on Microfoundations: A Stackelberg Mean Field Game Approach," Papers 2403.12093, arXiv.org.
    5. Rui & Shi, 2021. "Learning from zero: how to make consumption-saving decisions in a stochastic environment with an AI algorithm," Papers 2105.10099, arXiv.org, revised Feb 2022.
    6. Hinterlang, Natascha & Tänzer, Alina, 2021. "Optimal monetary policy using reinforcement learning," Discussion Papers 51/2021, Deutsche Bundesbank.
    7. Michael Curry & Alexander Trott & Soham Phade & Yu Bai & Stephan Zheng, 2022. "Analyzing Micro-Founded General Equilibrium Models with Many Agents using Deep Reinforcement Learning," Papers 2201.01163, arXiv.org, revised Feb 2022.

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