NEW PUBLICATION: 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 constant and time-varying local projection (TV-LP) regression models. First, the panel evidence suggests that the interest rate decreases in the short run and increases in the medium run in the event of a GPR shock. Second, the results are confirmed in the time-varying model, where the policy reaction is accommodating in the short run (1 to 2 months) to limit the negative effects on consumer sentiment. In the medium term (12 to 15 months), the central bank is more committed to combating inflation pressures.
Keywords: Monetary Policy, Local Projections, Time-varying Local Projections, Geopolitical Risk.
JEL Classification: F44, E44, E43, F51
You can find the SSRN version with the abstract and the keywords in an older post.
You can quote this article as:
Ginn, W., & Saadaoui, J. (2025). Monetary Policy Reaction to Geopolitical Risks in Unstable Environments. Macroeconomic Dynamics, forthcoming.
