In the 6 posts of the series about the inflationary effects of geopolitical risks, I revisited the paper by Dario Caldara, Sarah Conlisk, Matteo Iacoviello, and Maddie Penn from several complementary angles. The sequence of questions was cumulative. Does geopolitical risk raise inflation in the long historical panel? Do acts differ from threats? Do global shocks differ from country-specific shocks? Does the result survive a narrative identification exercise? Does it remain once one allows for cross-country heterogeneity? And finally, do foreign geopolitical shocks spill over into domestic inflation and activity? Part VI makes clear that the inflationary effect survives these increasingly demanding checks.
As the discussion progresses, the specification becomes more complete. Once one introduces local geopolitical risk measures, allows for spillovers, and absorbs common time variation, the empirical design gets much closer to a framework in which domestic geopolitical shocks are no longer mechanically conflated with the global geopolitical environment. That point matters a great deal. In macroeconomics, it is very easy to mistake a worldwide rise in tension for a local shock if the common component is not handled properly. The deeper achievement of the series is therefore to clarify identification, not merely to accumulate robustness checks.
This is exactly why the paper I wrote with William Ginn is the natural next step in the agenda. Once one has a more convincing empirical separation between local geopolitical disturbances, global geopolitical movements, and international spillovers, the next question is unavoidable: how do central banks react in that environment? If geopolitical shocks can raise inflation, weaken activity, and propagate across borders, then monetary policy is immediately confronted with a difficult intertemporal trade-off. The central bank is not reacting to a simple domestic disturbance. It is reacting to a shock embedded in a broader international and unstable environment.
That is the question we study in “Monetary policy reaction to geopolitical risks in unstable environments”, published in Macroeconomic Dynamics. The paper uses a panel of 18 economies and estimates an augmented panel Taylor rule with both constant-parameter and time-varying local projection methods. The abstract reports a clear result: after a geopolitical risk shock, the policy rate tends to decline in the short run and rise in the medium run. In the time-varying specification, the response is accommodating over about 1 to 2 months, while the medium-run response over roughly 12 to 15 months becomes more anti-inflationary.
I see this paper as a logical continuation of the earlier inflation series because the underlying mechanism is the same. In the 6 blogs, the message was that geopolitical risk is not a narrow domestic event. It may be local, global, or imported through spillovers. It can affect inflation through several channels at once, including energy prices, imported costs, trade disruptions, expectations, and confidence. Once that richer structure is recognized, one should not expect monetary policy to react with a single stable coefficient. One should expect a dynamic response that changes across horizons and, very likely, over time.
This is precisely what the paper finds. In the short run, central banks appear to respond to the weaker activity and sentiment associated with a geopolitical shock. That makes an accommodating reaction plausible. But later, as inflationary pressures emerge more clearly, the policy reaction changes sign. In that sense, the short-run easing and the medium-run tightening are not contradictory. They are the natural response to a shock that first looks recessionary and later becomes more visibly inflationary. The horizon profile is the economic story.
This is also why local projections are particularly well suited to the question. If one estimated only an average policy response, the result might look weak or ambiguous. But a horizon-by-horizon approach reveals the mechanism much more clearly. The same general point was already visible in the 6-blog inflation series: timing matters, and static specifications often conceal what is economically most interesting. The paper with William Ginn extends that lesson from inflation dynamics to monetary-policy dynamics.
More broadly, I think the connection between the 2 projects is methodological as much as substantive. The substantive point is that geopolitical risk has real macroeconomic consequences for prices and activity. The methodological point is that credible inference requires distinguishing as carefully as possible between local shocks, global shocks, and spillovers. Once that is done, the monetary-policy question becomes much sharper. Central banks must decide how to react when a shock depresses activity in the short run but adds inflationary pressure later on. That is exactly the kind of unstable environment for which time-varying local projections are useful.
So this is how I would frame the contribution of the paper within the broader series. The 6 blogs show that the inflationary consequences of geopolitical risk survive increasingly demanding exercises, including heterogeneity and spillovers. The paper with William Ginn asks what central banks do once they face that richer geopolitical environment. The answer is nuanced but coherent: they initially lean toward accommodation, then move in a more anti-inflationary direction as the medium-run effects materialize.
The bottom line is simple. Once the empirical specification is rich enough to distinguish local and global geopolitical disturbances more credibly, the next question is no longer whether geopolitical risk matters. It is how policymakers respond to it. That is the question of the paper with William Ginn, and that is why it follows naturally from the 6 blogs.
References
Caldara, D., Conlisk, S., Iacoviello, M., & Penn, M. (2026). Do geopolitical risks raise or lower inflation? Journal of International Economics, 159, 104188.
Ginn, W., & Saadaoui, J. (2025). Monetary policy reaction to geopolitical risks in unstable environments. Macroeconomic Dynamics, 29, e90.
Saadaoui, J. (2026). Do geopolitical risks raise or lower inflation? Part I. EconMacro. https://www.jamelsaadaoui.com/do-geopolitical-risks-raise-or-lower-inflation-part-i/
Saadaoui, J. (2026). Do geopolitical risks raise or lower inflation? Part II. EconMacro. https://www.jamelsaadaoui.com/do-geopolitical-risks-raise-or-lower-inflation-part-ii/
Saadaoui, J. (2026). Do geopolitical risks raise or lower inflation? Part III. EconMacro. https://www.jamelsaadaoui.com/do-geopolitical-risks-raise-or-lower-inflation-part-iii/
Saadaoui, J. (2026). Do geopolitical risks raise or lower inflation? Part IV. EconMacro. https://www.jamelsaadaoui.com/do-geopolitical-risks-raise-or-lower-inflation-part-iv/
Saadaoui, J. (2026). Do geopolitical risks raise or lower inflation? Part V. EconMacro. https://www.jamelsaadaoui.com/do-geopolitical-risks-raise-or-lower-inflation-part-v/
Saadaoui, J. (2026). Do geopolitical risks raise or lower inflation? Part VI. EconMacro. https://www.jamelsaadaoui.com/do-geopolitical-risks-raise-or-lower-inflation-part-vi/