Geopolitical Risk and Inflation Spillovers across European and North American Economies

Elie Bouri (elie.bouri@lau.edu.lb), David Gabauer, Rangan Gupta and Harald Kinateder (harald.kinateder@uni-passau.de)
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Elie Bouri: School of Business, Lebanese American University, Beirut, Lebanon
Harald Kinateder: School of Business, Economics and Information Systems, University of Passau, Germany

No 202304, Working Papers from University of Pretoria, Department of Economics

Abstract: In this paper, we examine the spillover across the monthly inflation rates (measured by the CPI) covering the USA, Canada, UK, Germany, France, Netherlands, Belgium, Italy, Spain, Portugal, and Greece. Using data covering the period from May 1963 to November 2022 within a time-varying spillover approach, we show that the total spillover index across the inflation rates spiked during the war in Ukraine period, exceeding its previous peak shown during the 1970s energy crisis. Notably, we apply a quantile-on-quantile regression and reveal that the total spillover index is positively associated with the level of global geopolitical risk (GPR) index. Levels of GPR are positively influencing high levels of the inflation spillover index, whereas the GPR Acts index is positively associated with all levels of inflation spillover index. Given that rising levels of inflation are posing risks to the financial system and economic growth, these findings should matter to the central banks and policymakers in advanced economies. They suggest that the policy response should go beyond conventional monetary tools by considering the political actions necessary to solve the Russia-Ukraine war and ease the global geopolitical tensions.

Keywords: Inflation spillovers; geopolitical risk; TVP-VAR; dynamic connectedness (search for similar items in EconPapers)
JEL-codes: C32 C5 G15 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2023-03
New Economics Papers: this item is included in nep-ban, nep-cba, nep-cis, nep-his, nep-mon and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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