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Deep reinforcement learning in a monetary model

Author

Listed:
  • Mingli Chen

    (University of Oxford)

  • Rama Cont

    (University of Warwick)

  • Andreas Joseph

    (Bank of England)

  • Michael Kumhof

    (Bank of England)

  • Xinlei Pan

    (University of California (Berkeley))

  • Wei Xiong

    (University of Oxford)

  • Xuan Zhou

    (Reserve Bank of Australia)

Abstract

We propose deep reinforcement learning (DRL) as a general approach to bounded rationality in dynamic stochastic general equilibrium (DSGE) models. Agents are represented by deep artificial neural networks and learn to maximise their intertemporal objective function by interacting with an a priori unknown environment. Applying this approach to a model from the adaptive learning literature, DRL agents can learn all equilibria irrespective of local stability properties. However, learning is slow and may be unstable without the imposition of early stopping criteria. These findings can have implications for the use and interpretation of DRL agents and of DSGE models more generally.

Suggested Citation

  • Mingli Chen & Rama Cont & Andreas Joseph & Michael Kumhof & Xinlei Pan & Wei Xiong & Xuan Zhou, 2025. "Deep reinforcement learning in a monetary model," Bank of England Staff Working Paper series 1142, Bank of England.
    • Handle: RePEc:boe:boeewp:023264
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    File URL: https://www.bankofengland.co.uk/-/media/boe/files/working-paper/2025/deep-reinforcement-learning-in-a-monetary-model.pdf
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    Keywords

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    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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