Measuring Geopolitical Risk

Dario Caldara and Matteo Iacoviello

No 1222r1, International Finance Discussion Papers from Board of Governors of the Federal Reserve System (U.S.)

Abstract: We present a news-based measure of adverse geopolitical events and associated risks. The geopolitical risk (GPR) index spikes around the two world wars, at the beginning of the Korean War, during the Cuban Missile Crisis, and after 9/11. Higher geopolitical risk foreshadows lower investment and employment and is associated with higher disaster probability and larger downside risks. The adverse consequences of the GPR index are driven by both the threat and the realization of adverse geopolitical events. We complement our aggregate measures with industry- and firm-level indicators of geopolitical risk. Investment drops more in industries that are exposed to aggregate geopolitical risk. Higher firm-level geopolitical risk is associated with lower firm-level investment.

Keywords: Geopolitical Risk; War; Terrorism; Business Cycles; Disaster Risk; Firm-level investment; Textual Analysis; Earnings Calls; Quantile Regressions (search for similar items in EconPapers)
JEL-codes: C1 D80 E32 H56 (search for similar items in EconPapers)
Pages: 81 pages
Date: 2018-02-02, Revised 2022-03-23
New Economics Papers: this item is included in nep-cis, nep-mac and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (240)

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Related works:
Journal Article: Measuring Geopolitical Risk (2022)
Working Paper: Measuring Geopolitical Risk (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgif:1222

DOI: 10.17016/IFDP.2018.1222r1

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