Measuring Geopolitical Risk
Dario Caldara () and
No 1222, International Finance Discussion Papers from Board of Governors of the Federal Reserve System (U.S.)
We present a monthly indicator of geopolitical risk based on a tally of newspaper articles covering geopolitical tensions, and examine its evolution and effects since 1985. The geopolitical risk (GPR) index spikes around the Gulf War, after 9/11, during the 2003 Iraq invasion, during the 2014 Russia-Ukraine crisis, and after the Paris terrorist attacks. High geopolitical risk leads to a decline in real activity, lower stock returns, and movements in capital flows away from emerging economies and towards advanced economies. When we decompose the index into threats and acts components, the adverse effects of geopolitical risk are mostly driven by the threat of adverse geopolitical events. Extending our index back to 1900, geopolitical risk rose dramatically during the World War I and World War II, was elevated in the early 1980s, and has drifted upward since the beginning of the 21st century.
Keywords: Geopolitical Risk; Economic Uncertainty; War; Terrorism; Business Cycles (search for similar items in EconPapers)
JEL-codes: C1 D80 E32 H56 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cis, nep-mac and nep-rmg
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