Geopolitical Risks, Inflation Pressure, and the U.S. Treasury Yield Curve

Linlin Niu, Haoran Bai and Zhiwu Hong

No 2025-09-25, Working Papers from Wang Yanan Institute for Studies in Economics (WISE), Xiamen University

Abstract: The U.S. Treasury yields reached a 20-year high under acute inflation pressure in the post-pandemic era amid aggravated geopolitical conflicts. To quantify the underlying effects of regional geopolitical risks (GPRs) of key U.S. strategic interests, we employ an extended affine term structure model with unspanned GPRs and conventional macroeconomic drivers. We find that GPR shocks, particularly those manifesting U.S.-China rivalry, contribute more to expectations and variations of inflation and yields than shocks to U.S. macroeconomic variables. The results warn on the adequacy of monetary policy in curbing inffation in a fragmented global order with escalating GPRs.

Keywords: geopolitical risk; yield curve; inflation; term structure model (search for similar items in EconPapers)
JEL-codes: C32 E31 E43 E44 F51 (search for similar items in EconPapers)
Pages: 63 pages
Date: 2026-02-05
New Economics Papers: this item is included in nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:wyi:wpaper:002616

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