Monetary Policy Reaction to Geopolitical Risks: Some Nonlinear Evidence

William Ginn () and Jamel Saadaoui

No 2024.03, Working Papers from International Network for Economic Research - INFER

Abstract: How do geopolitical risk shocks impact monetary policy? Based on a panel of 20 economies, we develop and estimate an augmented panel Taylor rule via linear and nonlinear local projections (LP) regression models. First, the linear model suggests that the interest rate remains relatively unchanged in the event of an uncertainty shock. Second, the result turns out to be different in the nonlinear model, where the policy reaction is muted during an expansionary state, which is operating in a manner proportional to the transitory shock. However, geopolitical risks can amplify the policy reaction during a non-expansionary period.

Keywords: monetary policy; linear and nonlinear local projections; geopolitical risk; economic policy uncertainty (search for similar items in EconPapers)
JEL-codes: E (search for similar items in EconPapers)
Pages: 19 pages
Date: 2024
New Economics Papers: this item is included in nep-cba and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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