Monetary Policy Reaction to Geopolitical Risks: Some Nonlinear Evidence

William Ginn and Jamel Saadaou

Working Papers of BETA from Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg

Abstract: How do geopolitical risk shocks impact monetary policy? Based on a panel of 20 economies, we develop and estimate an augmented panel Taylor rule via linear and nonlinear local projections (LP) regression models. First, the linear model suggests that the interest rate remains relatively unchanged in the event of an uncertainty shock. Second, the result turns out to be different in the nonlinear model, where the policy reaction is muted during an expansionary state, which is operating in a manner proportional to the transitory shock. However, geopolitical risks can amplify the policy reaction during a non-expansionary period.

Keywords: Monetary Policy; Linear and Nonlinear Local Projections; Geopolitical Risk; Economic Policy Uncertainty. (search for similar items in EconPapers)
JEL-codes: E44 F44 (search for similar items in EconPapers)
Date: 2024
New Economics Papers: this item is included in nep-mon and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:ulp:sbbeta:2024-16

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