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The Impact of Geopolitical Risk on Consumer Expectations and Spending

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  • Yuriy Gorodnichenko
  • Dimitris Georgarakos
  • Geoff Kenny
  • Olivier Coibion

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

  • Yuriy Gorodnichenko & Dimitris Georgarakos & Geoff Kenny & Olivier Coibion, 2025. "The Impact of Geopolitical Risk on Consumer Expectations and Spending," NBER Working Papers 34195, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:34195
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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. 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.
    3. Christelis, Dimitris & Georgarakos, Dimitris & Jappelli, Tullio & Kenny, Geoff, 2025. "Wealth shocks and portfolio choice," Journal of Monetary Economics, Elsevier, vol. 149(C).
    4. 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.
    5. 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.).
    6. 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.
    7. 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.
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    10. 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.
    11. 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.
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    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.

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    More about this item

    JEL classification:

    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General

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