Tell me why! Looking under the bonnet of machine learning models

Carsten Jung and Philippe Bracke

Whether in case of a breakup (Backstreet Boys), wondering why a relationship isn’t working (Mary J. Blige) or bad weather (Travis) – humans really care about explanations. The same holds in the world of finance, where firms increasingly deploy artificial intelligence (AI) software. But AI is often so complex that it becomes hard to explain why exactly it made a decision in a certain way. This issue isn’t purely hypothetical. Our recent survey found that AI already impacts customers – whether it’s calculating the price of an insurance policy or assessing a borrower’s credit-worthiness. In our new paper, we argue that so-called ‘explainability methods’ can help address this problem. But we also caution that, perhaps as with humans, gaining a deeper understanding of such models remains very hard.

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Build-your-own fancharts in R

Andrew Blake

Central banks the world over calculate and plot forecast fancharts as a way of illustrating uncertainty. Explaining the details of how this is done in a single blog post is a big ask, but leveraging free software tools means showing how to go about it isn’t. Each necessary step (getting data, building a model, forecasting with it, creating a fanchart) is shown as R code. In this post, a simple data-coherent model (a vector auto-regression or VAR) is used to forecast US GDP growth and inflation and the resulting fanchart plotted, all in a few self-contained chunks of code.

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Handel and the Bank of England

Ellen T. Harris

This guest post is the third of an occasional series of guest posts by external researchers who have used the Bank of England’s archives for their work on subjects outside traditional central banking topics.

George Frideric Handel was a master musician — an internationally renowned composer, virtuoso performer, and music director of London’s Royal Academy of Music, one of Europe’s most prestigious opera houses. For musicologists, studying his life and works typically means engaging with his compositional manuscripts at The British Library, as well as the documents, letters, and newspapers that describe his interaction with royalty, relationships to others, and contemporary reaction to his music. But when I began to explore Handel’s personal accounts at the Bank of England twenty years ago, I was often asked why. For me the answer was always ‘follow the money’. Handel’s financial records provide a unique window on his career, musical environments, income, and even his health.

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