Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/317790 
Year of Publication: 
2025
Series/Report no.: 
Bank of Finland Research Discussion Papers No. 5/2025
Publisher: 
Bank of Finland, Helsinki
Abstract: 
We investigate the macroeconomic effects of two recent major geopolitical events on the euro area economy, namely, the outbreak of the Israel-Hamas war and the Russian invasion of Ukraine. To take into account the heterogeneity of geopolitical events, we do not seek to identify a homogeneous geopolitical shock on which to base our causal inference, but construct event-specific combinations of jointly identified macroeconomic shocks instead. To this end, we employ a non-Gaussian structural vector autoregressive model that is statistically identified but also makes use of zero- and sign restrictions and illustrate how different sources of identifying information complement each other. Our results show that adverse geopolitical events may have either inflationary or deflationary effects on indirectly affected economies and that context dependence is required from the monetary authorities when assessing the importance of geopolitical shocks to achieving their price stability objectives.
Subjects: 
structural vector autoregression
statistical identification
monetary policy
inflation
geopolitics
JEL: 
C32
C54
F51
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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