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Artificial Intelligence and Inflation Forecasts

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Abstract

We explore the ability of Large Language Models (LLMs) to produce in-sample conditional inflation forecasts during the 2019-2023 period. We use a leading LLM (Google AI's PaLM) to produce distributions of conditional forecasts at different horizons and compare these forecasts to those of a leading source, the Survey of Professional Forecasters (SPF). We find that LLM forecasts generate lower mean-squared errors overall in most years, and at almost all horizons. LLM forecasts exhibit slower reversion to the 2% inflation anchor.

Suggested Citation

  • Miguel Faria-e-Castro & Fernando Leibovici, 2023. "Artificial Intelligence and Inflation Forecasts," Working Papers 2023-015, Federal Reserve Bank of St. Louis, revised 26 Feb 2024.
  • Handle: RePEc:fip:fedlwp:96478
    DOI: 10.20955/wp.2023.015
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    References listed on IDEAS

    as
    1. John J. Horton, 2023. "Large Language Models as Simulated Economic Agents: What Can We Learn from Homo Silicus?," NBER Working Papers 31122, National Bureau of Economic Research, Inc.
    2. John J. Horton, 2023. "Large Language Models as Simulated Economic Agents: What Can We Learn from Homo Silicus?," Papers 2301.07543, arXiv.org.
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    More about this item

    Keywords

    inflation forecasts; large language models; artificial intelligence;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • C45 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Neural Networks and Related Topics
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods

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