A0985
Title: A new measure of geopolitical risk for a large cross-section of countries
Authors: Karol Szafranek - SGH Warsaw School of Economics (Poland) [presenting]
Joscha Beckmann - University of Hagen (Germany)
Michal Rubaszek - SGH Warsaw School of Economics (Poland)
Michael Murach - FernUniversitat in Hagen (Germany)
Abstract: The aim is to propose new geopolitical risk (GPR) indices for over 180 countries and the global economy. A unique database on activity metrics, sentiment, and tonality on geopolitical events implied from newspapers and social media is explored via natural language processing. Narrow and broad GPR indices are provided since 1998, and the measures are compared to the popular benchmark presented in a prior seminal work. It is shown that the narrow GPR index for the global economy is strongly correlated with the CI measure, which is not the case for the broad GPR proxy. Next, evidence is provided that in specifications using the broad measure, the response of key macroeconomic variables to GPR changes is stronger, while the portion of variance explained by the model increases. It is also found that negative media sentiment acts as a propagation mechanism for geopolitical risk, in particular in high-income and OECD economies.
