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Do geopolitical risks raise or lower inflation?

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  • Caldara, Dario
  • Conlisk, Sarah
  • Iacoviello, Matteo
  • Penn, Maddie

Abstract

Do geopolitical risks raise or lower inflation? Using a unique dataset containing historical macroeconomic data since 1900 for 44 economies, we find that geopolitical risks foreshadow high inflation, with the intensity of this effect differing across countries and historical periods. The rise in inflation is accompanied by lower economic activity; an increase in military spending, public debt, and money growth; supply disruptions; and a decline in international trade. Geopolitical risks are also associated with higher inflation uncertainty and the risk of significant inflation increases. Using a monthly vector autoregression model estimated on global data since the 1970s, we confirm that global geopolitical risks increase inflation, with the inflationary effect of higher commodity prices and currency depreciation more than offsetting the deflationary effects of lower consumer sentiment and tighter financial conditions.

Suggested Citation

  • Caldara, Dario & Conlisk, Sarah & Iacoviello, Matteo & Penn, Maddie, 2026. "Do geopolitical risks raise or lower inflation?," Journal of International Economics, Elsevier, vol. 159(C).
    • Handle: RePEc:eee:inecon:v:159:y:2026:i:c:s002219962500145x
    DOI: 10.1016/j.jinteco.2025.104188
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    Cited by:

    1. Yang Zhou & Shigeto Kitano, 2025. "Geopolitical Risk and Extreme Capital Flow Episodes," Discussion Paper Series DP2025-32, Research Institute for Economics & Business Administration, Kobe University.
    2. PAPAINOG, Maria-Teodora, 2026. "The Impact Of Geopolitical Crises On Fiscal And Budgetary Stability," Studii Financiare (Financial Studies), Centre of Financial and Monetary Research "Victor Slavescu", vol. 30(1), pages 110-124, March.
    3. Bondarenko, Yevheniia & Kang, Nayeon & Lewis, Vivien & Rottner, Matthias & Schüler, Yves, 2026. "Geopolitical Risk in the Euro Area: Measurement and Transmission," CEPR Discussion Papers 21409, Centre for Economic Policy Research.
    4. Ambrocio, Gene & Fungáčová, Zuzana & Heikkinen, Joni & Kerola, Eeva & Korhonen, Iikka & Norring, Anni, 2025. "Northern insights: Geopolitical risk from Finnish news media," Bank of Finland Research Discussion Papers 13/2025, Bank of Finland.
    5. Chengjiu Sun & Shanshan Wang, 2026. "The Impact of US Sanctions on Food Security: Evidence from a Global Panel," Working Papers 202612, Center for Global Policy Analysis, LeBow College of Business, Drexel University.
    6. Metiu, Norbert & Völpel, Martin, 2026. "Geopolitical hybrid threats," Discussion Papers 11/2026, Deutsche Bundesbank.

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    JEL classification:

    • C30 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - General
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • F44 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Business Cycles
    • H56 - Public Economics - - National Government Expenditures and Related Policies - - - National Security and War

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