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Measuring Geopolitical Risk

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  • Matteo Iacoviello

    (Federal Reserve Board)

Abstract

We present a monthly indicator of geopolitical risk based on a tally of newspaper articles covering geopolitical tensions, and examine its evolution and effects since 1985. The geopolitical risk (GPR) index spikes around the Gulf War, after 9/11, during the 2003 Iraq invasion, during the 2014 Russia-Ukraine crisis, and after the Paris terrorist attacks. High geopolitical risk leads to a decline in real activity, lower stock returns, and movements in capital flows away from emerging economies and towards advanced economies. When we decompose the index into threats and acts components, the adverse effects of geopolitical risk are mostly driven by the threat of adverse geopolitical events. Extending our index back to 1900, geopolitical risk rose dramatically during the World War I and World War II, was elevated in the early 1980s, and has drifted upward since the beginning of the 21st century.

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  • Matteo Iacoviello, 2018. "Measuring Geopolitical Risk," 2018 Meeting Papers 79, Society for Economic Dynamics.
  • Handle: RePEc:red:sed018:79
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    More about this item

    JEL classification:

    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • H56 - Public Economics - - National Government Expenditures and Related Policies - - - National Security and War

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