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Geopolitical risks and the dual dynamics of global inflation: Regime dependence and uncertainty

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  • Andriantomanga, Zo

Abstract

This paper examines the time-varying impact of geopolitical risks on both the level and volatility of global inflation. While the existing literature generally finds that geopolitical risks are inflationary, we show that their effects are asymmetric and depend on the broader macroeconomic environment. Using a flexible Bayesian VAR with monthly data for 83 countries from January 1998 to March 2023, we find that geopolitical risk shocks were modestly disinflationary during demand-deficient periods, such as the Global Financial Crisis, but became strongly inflationary in recent years, particularly after the COVID-19 pandemic and around the Russia–Ukraine war. Most strikingly, geopolitical risk shocks consistently raise the volatility of global inflation. These findings underscore the dual challenge geopolitical risk poses for monetary policy: managing both inflation and its instability in an increasingly uncertain world, where such shocks act less as independent drivers than as amplifiers of prevailing macroeconomic conditions.

Suggested Citation

  • Andriantomanga, Zo, 2026. "Geopolitical risks and the dual dynamics of global inflation: Regime dependence and uncertainty," Economic Modelling, Elsevier, vol. 158(C).
    • Handle: RePEc:eee:ecmode:v:158:y:2026:i:c:s0264999326000787
    DOI: 10.1016/j.econmod.2026.107549
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    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • 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

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