AI and Financial Systemic Risk in the Global Market

Jingyi Tian and Jun Nagayasu

No 55, TUPD Discussion Papers from Graduate School of Economics and Management, Tohoku University

Abstract: As artificial intelligence (AI) emerges as a key driver of Industry 4.0, nations are vying for a competitive edge in AI advancements, innovation, and applications. This study investigates AI’s role in the financial system by delving into the intricate relationship between AI and financial systemic risk (FSR) across diverse contexts. The results show that, first, AI investment is generally associated with increased FSR. Second, glohttps://tohoku.repo.nii.ac.jp/records/2002584bal risk spillover is observed in the FSR of various countries. Extreme events can lead to a sharp and simultaneous increase in FSR across nations. In addition, after removing global risk spillover, the FSR dynamics of countries do not strictly conform to geographical proximity. Third, mechanism analysis reveals that AI increases FSR by enhancing the interconnectedness between entities and raising unemployment.

Pages: 45 pages
Date: 2024-10
New Economics Papers: this item is included in nep-ain and nep-fdg
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