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Matteo Iacoviello (Federal Reserve Board Washington DC) - "Measuring Geopolitical Risk"

30 Jan
KBS - Matteo Iacaviello - main image
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Part of Research Seminars in Economics

Every week, the Economics Group of King's Business School organises research seminars in economics. Bi-weekly research seminars in economics are organised by the Economics Group of King's Business School together with economists at the Department of Political Economy and Department of International Development

This week we welcome Matteo Iacoviello (Federal Reserve Board Washington DC).

"Measuring Geopolitical Risk"

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.


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