Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/311123 
Year of Publication: 
2024
Series/Report no.: 
ECB Working Paper No. 2972
Publisher: 
European Central Bank (ECB), Frankfurt a. M.
Abstract: 
In this paper, we investigate the presence of non-linearities in the transmission of geopolitical risk (GPR) shocks. Our methodology involves incorporating a non-linear function of the identified shock into a VARX model and examining its impulse response functions and historical decomposition. We find that the primary transmission channel of such shocks is associated with heightened uncertainty, which significantly escalates only with substantially large GPR shocks (i.e., above 4 standard deviations). This increase in uncertainty prompts precautionary saving behaviors, exerting a strong impact on consumption and reducing activity. The response of inflation is more subdued, reflecting both diminished demand and heightened uncertainty, which influence prices in opposing directions.
Subjects: 
Geopolitical Risk
Economic Activity
Inflation
Vector Autoregressions
Uncertainty
JEL: 
C30
D80
E32 F44
H56
Persistent Identifier of the first edition: 
ISBN: 
978-92-899-6817-1
Document Type: 
Working Paper

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