Macroeconomic effects of political risk shocks

Sinem Hacıoğlu-Hoke
Authors registered in the RePEc Author Service: Sinem Hacıoğlu Hoke

Economics Letters, 2024, vol. 242, issue C

Abstract: I investigate the macroeconomic effects of political risk caused by conflict among politicians in a proxy VAR. Using an external instrument based on an index of US partisan conflict for identification, I find that reduced political risk has an expansionary impact: it is immediately priced into stock prices, firms start taking more risk, it increases firms’ dividend payouts, debt issuance and credit use — ultimately output rises.

Keywords: Political risk shocks; Partisan conflict; Identification with external instruments; Structural vector autoregressions (search for similar items in EconPapers)
JEL-codes: C36 E2 E3 E6 (search for similar items in EconPapers)
Date: 2024
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Working Paper: Macroeconomic effects of political risk shocks (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:242:y:2024:i:c:s0165176524003616

DOI: 10.1016/j.econlet.2024.111877

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