IDEAS home Printed from https://ideas.repec.org/p/iza/izadps/dp18084.html

The Impact of Geopolitical Risk on Consumer Expectations and Spending

Author

Listed:
  • Gorodnichenko, Yuriy

    (University of California, Berkeley)

  • Georgarakos, Dimitris

    (European Central Bank)

  • Kenny, Geoff

    (European Central Bank)

  • Coibion, Olivier

    (University of Texas at Austin)

Abstract

Using novel scenario-based survey questions that randomize the expected duration of the Russian invasion of Ukraine and Middle East conflict, we examine the causal impact of geopolitical risk on consumers’ beliefs about aggregate economic conditions and their own financial outlook. Expecting a longer conflict leads European households to anticipate a worsening of the aggregate economy, with higher inflation, lower economic growth, and lower stock prices. They also perceive negative fiscal implications, anticipating higher government debt and higher taxes. Ultimately, households view the geopolitical conflict as making them worse off financially and it leads them to reduce their consumption.

Suggested Citation

  • Gorodnichenko, Yuriy & Georgarakos, Dimitris & Kenny, Geoff & Coibion, Olivier, 2025. "The Impact of Geopolitical Risk on Consumer Expectations and Spending," IZA Discussion Papers 18084, IZA Network @ LISER.
    • Handle: RePEc:iza:izadps:dp18084
    as

    Download full text from publisher

    File URL: https://docs.iza.org/dp18084.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Janet Hua Jiang & Rupal Kamdar & Kelin Lu & Daniela Puzzello, 2024. "How Do Households Respond to Expected Inflation? An Investigation of Transmission Mechanisms," CAEPR Working Papers 2024-004 Classification-D, Center for Applied Economics and Policy Research, Department of Economics, Indiana University Bloomington.
    2. Georgarakos, Dimitris & Kenny, Geoff, 2022. "Household spending and fiscal support during the COVID-19 pandemic: Insights from a new consumer survey," Journal of Monetary Economics, Elsevier, vol. 129(S), pages 1-14.
    3. Mary A. Burke & Ali Ozdagli, 2023. "Household Inflation Expectations and Consumer Spending: Evidence from Panel Data," The Review of Economics and Statistics, MIT Press, vol. 105(4), pages 948-961, July.
    4. Dimitris Georgarakos & Yuriy Gorodnichenko & Olivier Coibion & Geoff Kenny, 2024. "The Causal Effects of Inflation Uncertainty on Households' Beliefs and Actions," NBER Working Papers 33014, National Bureau of Economic Research, Inc.
    5. Robert J. Barro, 2006. "Rare Disasters and Asset Markets in the Twentieth Century," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 121(3), pages 823-866.
    6. Roberto Colarieti & Pierfrancesco Mei & Stefanie Stantcheva, 2024. "The How and Why of Household Reactions to Income Shocks," NBER Working Papers 32191, National Bureau of Economic Research, Inc.
    7. Olena Kostyshyna & Luba Petersen, 2024. "The Effect of Inflation Uncertainty on Household Expectations and Spending," NBER Working Papers 32939, National Bureau of Economic Research, Inc.
    8. Georgarakos, Dimitris & Kenny, Geoff, 2022. "Household spending and fiscal support during the pandemic – the role of public perceptions," Research Bulletin, European Central Bank, vol. 94.
    9. Christelis, Dimitris & Georgarakos, Dimitris & Jappelli, Tullio & Kenny, Geoff, 2025. "Wealth shocks and portfolio choice," Journal of Monetary Economics, Elsevier, vol. 149(C).
    10. Anna Lipinska & Musa Orak, 2020. "Real Effects of Uncertainty: Evidence from Brexit," FEDS Notes 2020-05-11, Board of Governors of the Federal Reserve System (U.S.).
    11. Peter Andrebriq & Carlo Pizzinelli & Christopher Roth & Johannes Wohlfart, 2022. "Subjective Models of the Macroeconomy: Evidence From Experts and Representative Samples," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 89(6), pages 2958-2991.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. BBVA Research & Alvaro Ortiz & Tomasa Rodrigo, 2025. "Global | Geopolítica, geoeconomía y riesgo: un enfoque basado en aprendizaje automático [Global | Geopolitics, geoeconomics and risk: a machine learning approach]," Working Papers 25/14, BBVA Bank, Economic Research Department.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Dimitris Georgarakos & Yuriy Gorodnichenko & Olivier Coibion & Geoff Kenny, 2024. "The Causal Effects of Inflation Uncertainty on Households' Beliefs and Actions," NBER Working Papers 33014, National Bureau of Economic Research, Inc.
    2. Janet Hua Jiang & Rupal Kamdar & Kelin Lu & Daniela Puzzello, 2024. "How Do Households Respond to Expected Inflation? An Investigation of Transmission Mechanisms," CAEPR Working Papers 2024-004 Classification-D, Center for Applied Economics and Policy Research, Department of Economics, Indiana University Bloomington.
    3. Ambrocio, Gene & Hasan, Iftekhar, 2022. "Belief polarization and Covid-19," Bank of Finland Research Discussion Papers 10/2022, Bank of Finland.
    4. Schnorpfeil, Philip & Weber, Michael & Hackethal, Andreas, 2023. "Households' response to the wealth effects of inflation," SAFE Working Paper Series 400, Leibniz Institute for Financial Research SAFE.
    5. Georgarakos, Dimitris & Kenny, Geoff & Meyer, Justus & van Rooij, Maarten, 2025. "How do rising temperatures affect inflation expectations?," Working Paper Series 3132, European Central Bank.
    6. Meinerding, Christoph & Poinelli, Andrea & Schüler, Yves, 2023. "Households’ inflation expectations and concern about climate change," European Journal of Political Economy, Elsevier, vol. 80(C).
    7. Georgarakos, Dimitris & Kenny, Geoff & Laeven, Luc & Meyer, Justus, 2025. "Consumer attitudes towards a central bank digital currency," Working Paper Series 3035, European Central Bank.
    8. repec:ecb:ecbdps:202424 is not listed on IDEAS
    9. Okan Akarsu & Emrehan Aktug & Huzeyfe Torun, 2025. "Inflation Expectations and Firms' Decisions in High Inflation: Evidence from a Randomized Control Trial," Working Papers 2512, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
    10. Volha Audzei & Sergey Slobodyan, 2025. "Dynamic Sparse Adaptive Learning," Working Papers 2025/9, Czech National Bank, Research and Statistics Department.
    11. Francesco D'Acunto & Janet Gao & Lu Liu & Kai Lu & Zhengwei Wang & Jun Yang, 2025. "Subjective Expectations and Financial Intermediation," CESifo Working Paper Series 11780, CESifo.
    12. Jessica Piccolo & Yuriy Gorodnichenko, "undated". "Homeownership and Attention to Inflation: Evidence from Information Treatments," "Marco Fanno" Working Papers 0317, Dipartimento di Scienze Economiche "Marco Fanno".
    13. Georgarakos, Dimitris & Kim, Kwang Hwan & Coibion, Olivier & Shim, Myungkyu & Lee, Myunghwan Andrew & Gorodnichenko, Yuriy & Kenny, Geoff & Han, Seowoo & Weber, Michael, 2025. "How Costly Are Business Cycle Volatility and Inflation? A Vox Populi Approach," IZA Discussion Papers 17675, IZA Network @ LISER.
    14. Laudenbach, Christine & Loos, Benjamin & Pirschel, Jenny & Wohlfart, Johannes, 2021. "The trading response of individual investors to local bankruptcies," Journal of Financial Economics, Elsevier, vol. 142(2), pages 928-953.
    15. Michael Weber & Bernardo Candia & Hassan Afrouzi & Tiziano Ropele & Rodrigo Lluberas & Serafin Frache & Brent Meyer & Saten Kumar & Yuriy Gorodnichenko & Dimitris Georgarakos & Olivier Coibion & Geoff, 2025. "Tell Me Something I Don't Already Know: Learning in Low‐ and High‐Inflation Settings," Econometrica, Econometric Society, vol. 93(1), pages 229-264, January.
    16. Michael Weber & Yuriy Gorodnichenko & Olivier Coibion, 2023. "The Expected, Perceived, and Realized Inflation of US Households Before and During the COVID19 Pandemic," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 71(1), pages 326-368, March.
    17. Bernardo Candia & Olivier Coibion & Yuriy Gorodnichenko, 2020. "Communication and the Beliefs of Economic Agents," NBER Working Papers 27800, National Bureau of Economic Research, Inc.
    18. Huang, Ruichen, 2025. "Non-response bias in expectation surveys: Different perceptions and expectations of financial matters from “early quitters”," Finance Research Letters, Elsevier, vol. 82(C).
    19. Goldfayn-Frank, Olga & Wohlfart, Johannes, 2020. "Expectation formation in a new environment: Evidence from the German reunification," Journal of Monetary Economics, Elsevier, vol. 115(C), pages 301-320.
    20. Michal Marencak & Giang Nghiem, 2025. "Personal Inflation Rates in the Euro Area," CAMA Working Papers 2025-17, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    21. Carola Conces Binder & Rupal Kamdar & Jane M. Ryngaert, 2024. "Partisan Expectations and COVID-Era Inflation," NBER Chapters, in: Inflation in the COVID Era and Beyond, National Bureau of Economic Research, Inc.

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;
    ;

    JEL classification:

    • D1 - Microeconomics - - Household Behavior
    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • F5 - International Economics - - International Relations, National Security, and International Political Economy

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:iza:izadps:dp18084. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Mark Fallak (email available below). General contact details of provider: https://edirc.repec.org/data/izaaalu.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.