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Background paper prepared for the October 2020 IMF World Economic Outlook. This paper provides a detailed presentation of the simulation results from the October 2020 IMF World Economic Outlook chapter 3 and an additional scenario with carbon pricing only for comparison with the comprehensive policy package where green investments were also included. This paper has greatly benefitted from continuous discussions with Oya Celasun and Benjamin Carton on the design of simulations; contributions from Philip Barrett for part of the simulations; and research support from Jaden Kim. We also received helpful comments from other IMF staff. All remaining errors are ours. McKibbin and Liu acknowledge financial support from the Australian Research Council Centre of Excellence in Population Ageing Research (CE170100005).

Macroeconomics --- Economics: General --- Taxation --- Environmental Economics --- Environmental Conservation and Protection --- Natural Resources --- Model Construction and Estimation --- Forecasting and Other Model Applications --- Quantitative Policy Modeling --- Large Data Sets: Modeling and Analysis --- Open Economy Macroeconomics --- Environmental Economics: General --- Valuation of Environmental Effects --- Climate --- Natural Disasters and Their Management --- Global Warming --- Taxation and Subsidies: Externalities --- Redistributive Effects --- Environmental Taxes and Subsidies --- Nonrenewable Resources and Conservation: General --- Economic & financial crises & disasters --- Economics of specific sectors --- Public finance & taxation --- Environmental economics --- Climate change --- Environmental management --- Carbon tax --- Taxes --- Greenhouse gas emissions --- Environment --- Non-renewable resources --- Climate finance --- Currency crises --- Informal sector --- Economics --- Environmental impact charges --- Greenhouse gases --- Emissions trading --- Natural resources --- Climatic changes --- China, People's Republic of

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This paper discusses the impact of the rapid adoption of artificial intelligence (AI) and machine learning (ML) in the financial sector. It highlights the benefits these technologies bring in terms of financial deepening and efficiency, while raising concerns about its potential in widening the digital divide between advanced and developing economies. The paper advances the discussion on the impact of this technology by distilling and categorizing the unique risks that it could pose to the integrity and stability of the financial system, policy challenges, and potential regulatory approaches. The evolving nature of this technology and its application in finance means that the full extent of its strengths and weaknesses is yet to be fully understood. Given the risk of unexpected pitfalls, countries will need to strengthen prudential oversight.

Artificial intelligence --- Banks --- Capital and Ownership Structure --- Computer security --- Cyber risk --- Depository Institutions --- Diffusion Processes --- Econometric and Statistical Methods: Special Topics: General --- Economic sectors --- Finance --- Finance: General --- Financial Institutions and Services: General --- Financial Institutions and Services: Government Policy and Regulation --- Financial Instruments --- Financial Risk and Risk Management --- Financial sector policy and analysis --- Financial sector stability --- Financial sector --- Financial services industry --- Financial services --- Financing Policy --- General Aggregative Models: Forecasting and Simulation --- General Financial Markets: Government Policy and Regulation --- Goodwill --- Industries: Financial Services --- Industries: Information Technololgy --- Information technology industries --- Information technology --- Innovation --- Institutional Investors --- Intellectual Property Rights: General --- Intelligence (AI) & Semantics --- Large Data Sets: Modeling and Analysis --- Machine learning --- Micro Finance Institutions --- Model Construction and Estimation --- Mortgages --- Non-bank Financial Institutions --- Online Safety & Privacy --- Pension Funds --- Research and Development --- Security measures --- Technological Change --- Technological Change: Choices and Consequences --- Technological innovations --- Technology --- Value of Firms --- Hong Kong Special Administrative Region, People's Republic of China