Seeds of Inflation: Geopolitical Risk and Inflation: The Role of Energy Markets

Marco Pinchetti

Working papers from Banque de France

Abstract: Geopolitical shocks are not all alike -- different classes of geopolitical shocks can have different macroeconomic implications, particularly on inflation. This paper exploits the comovement between the Geopolitical Risk Index (GPR) developed by Caldara and Iacoviello (2022) and oil prices across major geopolitical events to disentangle two types of geopolitical shocks within a structural VAR model for the US economy. The VAR estimates suggest that geopolitical shocks associated with disruptions in energy markets are on average inflationary and contractionary. In contrast, geopolitical shocks associated with macroeconomic developments that are unrelated to energy markets are on average deflationary and contractionary. To validate this interpretation, the paper exploits the heterogeneity across sectoral output and prices of the US economy to show that a sector’s response to a geopolitical shock depends on its energy intensity. Sectors characterized by higher energy intensity are subject to larger output losses and price increases in response to geopolitical energy shocks.

Keywords: Geopolitical Risk; Business Cycles; Energy; High-Frequency Sign Restrictions; High-Frequency Identification. (search for similar items in EconPapers)
JEL-codes: E31 E32 Q41 Q43 (search for similar items in EconPapers)
Pages: 51 pages
Date: 2025
New Economics Papers: this item is included in nep-ifn and nep-mon
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.banque-france.fr/system/files/2025-07/WP1005.pdf

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bfr:banfra:1005

Access Statistics for this paper

More papers in Working papers from Banque de France Banque de France 31 Rue Croix des Petits Champs LABOLOG - 49-1404 75049 PARIS. Contact information at EDIRC.
Bibliographic data for series maintained by Michael brassart ().