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The implications of AI for monetary policy: a first assessment

Author

Listed:
  • Lucia Esposito

    (Bank of Italy)

  • Elisa Guglielminetti

    (Bank of Italy)

  • Elia Moracci

    (Bank of Italy)

  • Andrea Papetti

    (Bank of Italy)

  • Massimiliano Pisani

    (Bank of Italy)

Abstract

This paper assesses the impact of artificial intelligence (AI) on monetary policy transmission and on central banks' reaction functions. By speeding up routine and repetitive tasks through automation and accelerating the incorporation of incoming information into decision-making, AI may affect productivity, market structure and broader macroeconomic developments. AI may also increase macro-financial complexity and systemic vulnerabilities by amplifying interconnectedness, heightening operational and cyber risks, and reinforcing procyclical and herding dynamics in an environment characterized by faster and partly algorithmic decision-making. Central banks' reaction functions will need to adapt to a setting marked by a different transmission mechanism, new uncertainty surrounding the natural rate of interest and tail risks. At the same time, AI could enhance the effectiveness of monetary policy by improving assessments of the macroeconomic outlook and the distribution of risks around it, as well as by strengthening monetary policy communication and the management of expectations.

Suggested Citation

  • Lucia Esposito & Elisa Guglielminetti & Elia Moracci & Andrea Papetti & Massimiliano Pisani, 2026. "The implications of AI for monetary policy: a first assessment," Questioni di Economia e Finanza (Occasional Papers) 1051, Bank of Italy, Economic Research and International Relations Area.
    • Handle: RePEc:bdi:opques:qef_1051_26
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    JEL classification:

    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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