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Measuring Geopolitical Risk

Author

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  • Matteo Iacoviello

    (Federal Reserve Board)

Abstract

We present a monthly indicator of geopolitical risk based on a tally of newspaper articles covering geopolitical tensions, and examine its evolution and effects since 1985. The geopolitical risk (GPR) index spikes around the Gulf War, after 9/11, during the 2003 Iraq invasion, during the 2014 Russia-Ukraine crisis, and after the Paris terrorist attacks. High geopolitical risk leads to a decline in real activity, lower stock returns, and movements in capital flows away from emerging economies and towards advanced economies. When we decompose the index into threats and acts components, the adverse effects of geopolitical risk are mostly driven by the threat of adverse geopolitical events. Extending our index back to 1900, geopolitical risk rose dramatically during the World War I and World War II, was elevated in the early 1980s, and has drifted upward since the beginning of the 21st century.

Suggested Citation

  • Matteo Iacoviello, 2018. "Measuring Geopolitical Risk," 2018 Meeting Papers 79, Society for Economic Dynamics.
  • Handle: RePEc:red:sed018:79
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    File URL: https://economicdynamics.org/meetpapers/2018/paper_79.pdf
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    Cited by:

    1. Wei-Fong Pan, 2019. "Geopolitical Risk and R&D investment," Economics & Management Discussion Papers em-dp2019-11, Henley Business School, Reading University.
    2. repec:eee:riibaf:v:47:y:2019:i:c:p:511-518 is not listed on IDEAS
    3. George Milunovich, 2018. "Cryptocurrencies, Mainstream Asset Classes and Risk Factors - A Study of Connectedness," Papers 1809.03072, arXiv.org.
    4. repec:eee:jimfin:v:92:y:2019:i:c:p:1-24 is not listed on IDEAS
    5. repec:eee:ecmode:v:78:y:2019:i:c:p:134-149 is not listed on IDEAS
    6. Aviral Kumar Tiwari & Goodness C. Aye & Rangan Gupta & Konstantinos Gkillas, 2019. "Gold-Oil Dependence Dynamics and the Role of Geopolitical Risks: Evidence from a Markov-Switching Time-Varying Copula Model," Working Papers 201918, University of Pretoria, Department of Economics.
    7. Seohyun Lee & Rickard Nyman, 2019. "Tracking Uncertainty through the Relative Sentiment Shift Series," Working Papers 2019-12, Economic Research Institute, Bank of Korea.
    8. repec:eee:ememar:v:36:y:2018:i:c:p:180-194 is not listed on IDEAS

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