06.02.2024: Maddie Penn – Do geopolitical risks raise or lower inflation?

Presenter: Maddie Penn.
Affiliation: Yale University, Department of Economics.

Paper: Do Geopolitical Risks Raise or Lower Inflation?

Date: February 06, 2024.
Time: 13:00 GMT (15:00 Israel Time)

Abstract: Using historical annual data since 1900 for 44 countries, we find that geopolitical risks foreshadow high inflation and are accompanied by lower economic activity, an increase in military spending and in public debt, a decline in trade with the rest of the world, and higher money growth. Higher geopolitical risks are also associated with more uncertain inflation and bigger upside risks to inflation. Using a monthly VAR model estimated on global data since the 1970s, we confirm that global geopolitical risks increase inflation, with the inflationary effect of higher commodity prices and currency depreciation more than offsetting the deflationary effects of lower consumer sentiment and tighter financial conditions.

Coauthors: Dario Caldara (Federal Reserve Board), Sarah Conlisk (Lyft), and Matteo Iacoviello (Federal Reserve Board).

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