Work

Monetary policy reaction to geopolitical risks in unstable environments

Year: 2025

Type: article

Abstract: How do geopolitical risk shocks impact monetary policy? Based on a panel of 18 economies, we develop and estimate an augmented panel Taylor rule via constant and time-varying local projection regression models. First, the panel evidence suggests that the interest rate decreases in the short run and increases in the medium run in the event of a geopolitical risk shock. Second, the results are confirmed in the time-varying model, where the policy reaction is accommodating in the short run (1 to 2 months) to limit the negative effects on consumer sentiment. In the medium term (12 to 15 months), the central bank is more committed to combating inflation pressures.

Source: Macroeconomic Dynamics

DOI: 10.1017/s136510052500015x

Authors: William Ginn, Jamel Saadaoui

Institutions: Coburg University of Applied Sciences, LabCorp (United States), Université Paris 8

Language: English

Topic: Monetary Policy and Economic Impact

Subfield: General Economics, Econometrics and Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: green

OpenAlex ID: W4408994499

FWCI: 37.14

Cites: 35

Cited by: 21

Related to: 10