A1115
Title: Rethinking GPR: The sources of geopolitical risk
Authors: Javier J Perez - Bank of Spain (Spain) [presenting]
Marina Diakonova - Bank of Spain (Spain)
Irma Alonso - Banco de Espana (Spain)
Abstract: Geopolitical risks are increasingly cited by policymakers and analysts as key factors influencing economic activity in both the short and medium term. A widely used method to measure these risks involves counting news articles on adverse geopolitical events, notably following a prior study's geopolitical risk (GPR) indexes. The aim is to propose a new approach to enhance GPR measurement by decomposing the index based on the origin of the risk. The concept of bilateral GPRs is introduced, which links geopolitical risks to specific countries or entities. Aggregating these bilateral indexes offers a clearer interpretation of overall GPR. Findings show that these new indices provide distinct insights beyond the benchmark GPR, offering a more accurate picture of current global tensions. Moreover, it is demonstrated that the geographical source of a GPR shock significantly affects its macroeconomic impact both in magnitude and direction on a given economy, as shown through standard VAR models.
