Bank of Canada developing new AI model to help with economic forecasts: Macklem

The Bank of Canada is developing a new artificial intelligence model named Prima to assist with economic forecasting, governor Tiff Macklem announced Monday in a speech in Halifax. Prima will serve as the central bank's primary forecasting model for its next interest rate announcement and Monetary Policy Report on Oct. 28, helping policymakers distinguish temporary inflation pressures from persistent ones and weigh alternative scenarios. "No model is going to solve every problem, but we are hopeful that this model will be better suited for a world with more supply shocks and in a more interconnected world," Macklem said at a press conference.

The Bank of Canada https://financialpost.com/tag/bank-of-canada/ is developing a new artificial intelligence https://financialpost.com/tag/artificial-intelligence/ model designed to help officials with economic forecasting. The model, named Prima, was announced on Monday morning as part of central bank governor Tiff Macklem's speech in Halifax https://financialpost.com/news/economy/bank-of-canada-warns-tariffs-slash-fourth-quarter-growth where he warned that the new United States tariffs could slash Canada's fourth-quarter growth in half. Macklem said the model will help monetary policymakers distinguish between temporary inflation https://financialpost.com/tag/inflation/ pressures and more persistent ones. It will also help consider alternative scenarios as part of their quarterly economic forecasts. Prima will be used for the first time as the Bank of Canada's primary forecasting model for its next interest rate https://financialpost.com/tag/interest-rates/ announcement and Monetary Policy Report https://financialpost.com/tag/monetary-policy/ , which is scheduled for Oct. 28. "No model is going to solve every problem, but we are hopeful that this model will be better suited for a world with more supply shocks and in a more interconnected world," Macklem said at a press conference after his speech. "We can use that to go back and look at how it would have performed through key episodes, but we'll also be using it to forecast going forward." This isn't the first time the Bank of Canada publicly announced it has adopted AI into its work flows. In 2024, https://www.bankofcanada.ca/2024/09/artificial-intelligence-the-economy-and-central-banking/ Macklem told attendees of an AI-related conference in Toronto that the central bank uses AI to forecast inflation and economic activity, track sentiment in key sectors of the economy, clean and verify data, and improve efficiency and de-risk central bank operations. The central bank's computer scientists also use AI to accelerate coding and it has its own internal large language model LLM , a specific type of generative AI that takes a prompt and generates completely new content, but only for language-specific tasks like writing, translating and summarizing. "It's still early days. We want to make sure we use AI responsibly. We want to make sure there's human control," Macklem said Monday when asked about security issues with AI. "When we first started using it, it was okay, but it wasn't great. It's getting a lot better as it learns, so that is helping." The Bank of Canada has also talked about AI as a tool to improve economic productivity in Canada, which has been lagging for the past 25 years. External deputy governor Michelle Alexopoulos said in a speech in May that AI has the potential to affect productivity, economic growth, employment and inflation, and adoption is spreading quickly. In the central bank's first-quarter Canadian Survey on Consumer Expectations, more than 30 per cent of respondents said they use AI to generate and edit content at work, while almost 25 per cent said they use the technology to analyze data, code or conduct research. A little more than 20 per cent of respondents said they use AI to automate work.