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From Iran to Russia to Hong Kong: Geopolitical Risks Are Weighing on the German Economy

Author

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  • Max Hanisch

Abstract

Over the past years, there has been an increase in global geopolitical risk, the most recent example being the intensifying conflict between the USA and Iran. Such geopolitical risks also affect the German economy. A geopolitical shock, defined as an unexpected increase in risk, has a significantly negative effect on the development of the German economy, and stock prices fall. By comparison, German industrial production reacts more strongly to an unexpected geopolitical shock than its American counterpart, while the opposite is true for stock markets. Overall, the effects are relatively moderate, but to minimize them, deeper economic and political integration is recommended.

Suggested Citation

  • Max Hanisch, 2020. "From Iran to Russia to Hong Kong: Geopolitical Risks Are Weighing on the German Economy," DIW Weekly Report, DIW Berlin, German Institute for Economic Research, vol. 10(6/7), pages 53-58.
    • Handle: RePEc:diw:diwdwr:dwr10-6-1
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    More about this item

    Keywords

    Geopolitical risk; industrial production; Germany; USA;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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