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Political Risk, Populism and the Economy

Author

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  • Pierluigi Balduzzi
  • Emanuele Brancati
  • Marco Brianti
  • Fabio Schiantarelli

Abstract

We study the financial and real effects of political risk shocks for Italy, Spain, Ireland, Portugal and Greece between 2008 and 2019. We build an instrument for these shocks using the changes of the sovereign yield spread around political and policy dates, and estimate their effects in the context of local projection. We show that adverse political risk shocks have negative effects on domestic financial markets and in some countries generate spillovers on the spreads of other eurozone economies. Moreover, in Italy populism-related political risk shocks have a larger effect on financial markets and they harm the real economy.

Suggested Citation

  • Pierluigi Balduzzi & Emanuele Brancati & Marco Brianti & Fabio Schiantarelli, 2023. "Political Risk, Populism and the Economy," The Economic Journal, Royal Economic Society, vol. 133(653), pages 1677-1704.
    • Handle: RePEc:oup:econjl:v:133:y:2023:i:653:p:1677-1704.
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    File URL: http://hdl.handle.net/10.1093/ej/uead017
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    Cited by:

    1. Pan, Wei-Fong, 2023. "The effect of populism on high-skilled migration: Evidence from inventors," European Journal of Political Economy, Elsevier, vol. 79(C).

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