Connectedness Among Geopolitical Risk, Inflation, Currency Values, and Exports by TVP-VAR Analysis: A Worldwide Perspective

Kyriazis Nikolaos A. (), Economou Emmanouil M. L. and Stergiou Andreas
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Kyriazis Nikolaos A.: Department of Economics, University of Thessaly, 28 October 78 Street, PC 38333, Volos, Greece
Economou Emmanouil M. L.: Department of Economics, University of Thessaly, 28 October 78 Street, PC 38333, Volos, Greece
Stergiou Andreas: Department of Economics, University of Thessaly, 28 October 78 Street, PC 38333, Volos, Greece

Peace Economics, Peace Science, and Public Policy, 2023, vol. 29, issue 4, 301-338

Abstract: The article discusses the spillover impacts between geopolitical uncertainty, inflation, exchange rates, and exports worldwide by employing the Time-Varying Parameter Vector Autoregressive (TVP-VAR) methodology. The net directional pairwise and net total directional causality among these variables is examined in major advanced economies (US, UK, Germany, France, Israel, South Korea and Japan) and rising economies (Russia, Türkiye, China, India, Brazil, and South Africa). Normal market conditions (since early 2000) and stressed ones since the latest crises (the Covid-19 disease and the Russia–Ukraine conflict) are covered. It is revealed that the national currency value constitutes the most influential determinant of exports and inflation but also in the system examined. Currency values exert direct impacts on inflation but also indirect, affecting exports and enhancing geopolitical risk as this is found to increase inflationary pressures. Intriguingly, this gives credence to the emergence of a new channel of inflation-creation that works through geopolitical risk. Such linkages are more pronounced in the US, South Korea, and Brazil while Germany and France present the weakest relations. Inflation, the currency value, and exports turned out to be very decisive regarding the geopolitical risk in Russia during the Russia–Ukraine war.

Keywords: geopolitical risk; inflation; monetary policy; exchange rate; exports; TVP-VAR connectedness (search for similar items in EconPapers)
JEL-codes: E31 E52 E58 E62 G15 (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1515/peps-2023-0026

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