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Flight from the Front Line: Geopolitical Risk, Distance, and Capital Flow Dynamics

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  • Martin Hodula
  • Jan Janku
  • Simona Malovana

Abstract

This brief shows that geopolitical shocks transmit through a spatial exposure channel linked to countries' geographic distance from conflict zones. Using monthly data for 40 advanced and emerging economies over 1995-2024 and local-projection methods, we document a clear distance gradient. Equity flows reallocate rapidly toward economies farther from the conflict, while debt flows adjust more gradually. Exchange rates respond immediately: proximate currencies depreciate and distant currencies appreciate. Geographic proximity thus independently shapes international spillovers, influencing both anticipatory exchange-rate movements and the subsequent redistribution of global capital.

Suggested Citation

  • Martin Hodula & Jan Janku & Simona Malovana, 2026. "Flight from the Front Line: Geopolitical Risk, Distance, and Capital Flow Dynamics," Research Briefs 2026/01, Czech National Bank, Research and Statistics Department.
    • Handle: RePEc:cnb:rbrief:2026/01
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    File URL: https://www.cnb.cz/en/economic-research/research-publications/research-brief/Flight-from-the-Front-Line-Geopolitical-Risk-Distance-and-Capital-Flow-Dynamics/
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