09 May 2019

Read my mind,
instantaneously: AI
central bank watching
Kristin Magnusson Bernard | Anders Svendsen | Mats Hydén | Inge Klaver | Sofia Fröjd | Daniel Bäumler

Central banks influence markets not only through what they do, but also
what they say. Artificial intelligence (AI) techniques can quickly, reliably
and objectively convert text into data and provide unprecedented 'virtual
assistance'.

Read the full report here.

What central bankers care about

We are able to tell a very intuitive story about the monetary policy strategy at the Fed, the ECB and the
Riksbank by training an algorithm to distribute the text of the meeting minutes into topics. This is a granular
and real-time complement to 'traditional' Taylor estimates of central bank reaction functions.

The Hawk-o-Meters: Cut, raise, or stay still

Our 'Thermostat' and 'Timing' Hawk-o-Meters indicate the most probable next policy action in terms of size
and direction during the next two meetings based on the words used and the topics discussed in the minutes.

Uncertainty and policy making

Increased uncertainty makes the appropriate policy action harder to decide and prone to more frequent
changes. We build an 'uncertainty index' which oers an an important cross-check on eg the Hawk-o-Meter
presented in this report.

AI central bank watching at your fingertips, in minutes

All analyses will be available to clients within a couple of minutes after the publication of the relevant
text sources. We will publish via the Twitter account @NordeaMacroLab, which can also be accessed via
Bloomberg.

e-markets.nordea.com/article/48838/read-my-mind-instantaneously-ai-central-bank-
watching
The Riksbank's Topic Distribution

e-markets.nordea.com/article/48838/read-my-mind-instantaneously-ai-central-bank-watching
Fed Hawk-o-Meter

Kristin Magnusson Bernard Anders Svendsen Mats Hydén

Global Head of Macro Research Chief Analyst Chief Analyst
kristin.magnusson.bernard@nordea.com anders.svendsen@nordea.com mats.hyden@nordea.com
+46721475015 4555471527 +46 8 614 96 02
Inge Klaver Sofia Fröjd Daniel Bäumler
Analyst sofia.frojd@nordea.com daniel.baumler@nordea.com
inge.klaver@nordea.com
46720848268

e-markets.nordea.com/article/48838/read-my-mind-instantaneously-ai-central-bank-watching