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Seminarios académicos y conferencias

Matteo Iacoviello, Federal Reserve Board

Measuring Geopolitical Risk

Coautor: Dario Caldara

17 Agosto 2017 - 17:00 hrs.

Sala 209, Facultad de Ciencias Económicas y Administrativas UC.

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Abstract: We present a monthly index of geopolitical risk (GPR index) based on a tally of newspaper
stories that contain terms related to geopolitical tensions, and examine its evolution and effects
since 1985. The 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. Overall, the GPR
index serves as a good proxy for movements in geopolitical risk over time. At the macro level,
we find that: (1) Higher geopolitical risk leads to a decline in real activity and is associated with
increases in the VIX and higher corporate credit spreads; (2) higher geopolitical risk leads to lower
stock returns; (3) higher geopolitical risk leads capital to flows away from emerging economies and
towards advanced economies.