The implications of AI for monetary policy: a first assessment

Lucia Esposito (), Elisa Guglielminetti (), Elia Moracci (), Andrea Papetti () and Massimiliano Pisani
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Lucia Esposito: Bank of Italy
Elisa Guglielminetti: Bank of Italy
Elia Moracci: Bank of Italy
Andrea Papetti: Bank of Italy

No 1051, Questioni di Economia e Finanza (Occasional Papers) from Bank of Italy, Economic Research and International Relations Area

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.

Keywords: artificial intelligence; credit markets; financial markets; inflation; business cycle; monetary policy (search for similar items in EconPapers)
JEL-codes: E31 E32 E44 E52 O33 (search for similar items in EconPapers)
Date: 2026-07
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