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The Impact of Geopolitical Risk on Consumer Expectations and Spending

Author

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  • 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
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    References listed on IDEAS

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    1. Janet Hua Jiang & Rupal Kamdar & Kelin Lu & Daniela Puzzello, 2024. "How Do Households Respond to Expected Inflation? An Investigation of Transmission Mechanisms," Staff Working Papers 24-44, Bank of Canada.
    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. 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.
    4. 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.).
    5. 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.
    6. 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.
    7. 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.
    8. Georgarakos, Dimitris & Gorodnichenko, Yuriy & Coibion, Olivier & Kenny, Geoff, 2024. "The Causal Effects of Inflation Uncertainty on Households' Beliefs and Actions," CEPR Discussion Papers 19563, Centre for Economic Policy Research.
    9. 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.
    10. 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.
    11. Christelis, Dimitris & Georgarakos, Dimitris & Jappelli, Tullio & Kenny, Geoff, 2025. "Wealth shocks and portfolio choice," Journal of Monetary Economics, Elsevier, vol. 149(C).
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    Cited by:

    1. Yevheniia Bondarenko & Nayeon Kang & Vivien Lewis & Matthias Rottner & Yves Schueler, 2026. "Geopolitical risk in the euro area: measurement and transmission," BIS Working Papers 1348, Bank for International Settlements.
    2. 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.
    3. 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.

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    Keywords

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    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

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