Geopolitical risks and their impact on global macro-financial stability: Literature and measurements

Martin Hodula, Jan Janků, Simona Malovaná and Ngoc Anh Ngo

No 9/2024, BOFIT Discussion Papers from Bank of Finland Institute for Emerging Economies (BOFIT)

Abstract: In our paper, we provide a review of the literature to identify the main transmission channels through which geopolitical risks (GPR) influence m a cro-financial st ab ility. We be gi n by analyzing the existing measures of geopolitical tensions and uncertainty, showing that GPR impacts economic and financial u n certainty e p isodically, w i th s i gnificant bu t tr an sient spikes during major geopolitical events. The review then identifies t he t wo p rincipal c hannels through which GPR affects macro-financial s t ability: t he fi nancial ch an nel, op erating th rough increased uncertainty and heightened risk aversion, leading to shifts in investment portfolio allocations and cross-border capital flows; a nd t he r eal e conomy c hannel, impacting global trade, s upply chains, and commodity markets. Using data from the past two to three decades, we provide graphical analyses that confirm t he fi ndings in the literature, hi ghlighting the episodic nature of the impact of GPR. These insights underscore the need for policymakers and financial i nstitutions t o adopt event-specific a p proaches t o e f fectively m i tigate t h e a d verse e f fects o f g e opolitical r i sks on economic and financial systems.

Keywords: Financial stability; geopolitical risk; global economy; macro-financial impact; uncertainty shocks (search for similar items in EconPapers)
JEL-codes: D80 E32 F44 F51 G15 G2 H56 (search for similar items in EconPapers)
Date: 2024
New Economics Papers: this item is included in nep-ifn and nep-upt
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Related works:
Working Paper: Geopolitical Risks and Their Impact on Global Macro-Financial Stability: Literature and Measurements (2024)
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