최신자료
A simple model of geopolitical risk and sanctions
Geopolitical risks (GPR) and the sanctions they often trigger can disrupt economies, particularly in targeted nations. Using Russia as a case study, this paper develops a simple economic model to understand how GPR shocks and sanctions affect the targeted country’s output, inflation, and monetary policy. The authors explore how sanctions amplify the economic consequences of geopolitical tensions for Russia and assess the role of monetary policy in mitigating these effects.
Geopolitical events such as conflicts or diplomatic crises can have profound economic consequences. These events often lead to sanctions, which further exacerbate economic disruptions. While previous research has examined the effects of GPR on Western economies, this paper focuses on the economic impact of GPR shocks on a sanctioned country, specifically Russia. The authors aim to answer two key questions: How do GPR shocks and sanctions affect the macroeconomy? And how should monetary policy respond to these shocks?
To answer these questions, the authors employ a three-equation New Keynesian model tailored to a small open economy and calibrated using Russian data. In this framework, GPR shocks are treated as negative productivity shocks, while sanctions are modeled as import tariffs that act as cost-push shocks. The model incorporates key features such as consumption habits and inflation indexation to capture the persistent effects of shocks. To validate the model, the authors use a vector autoregression analysis of Russian macroeconomic data from 2002 to 2021, excluding post-2022 data due to reliability concerns. The model parameters are estimated by matching the empirical impulse responses of output, inflation, and interest rates to GPR shocks.
Geopolitical events such as conflicts or diplomatic crises can have profound economic consequences. These events often lead to sanctions, which further exacerbate economic disruptions. While previous research has examined the effects of GPR on Western economies, this paper focuses on the economic impact of GPR shocks on a sanctioned country, specifically Russia. The authors aim to answer two key questions: How do GPR shocks and sanctions affect the macroeconomy? And how should monetary policy respond to these shocks?
To answer these questions, the authors employ a three-equation New Keynesian model tailored to a small open economy and calibrated using Russian data. In this framework, GPR shocks are treated as negative productivity shocks, while sanctions are modeled as import tariffs that act as cost-push shocks. The model incorporates key features such as consumption habits and inflation indexation to capture the persistent effects of shocks. To validate the model, the authors use a vector autoregression analysis of Russian macroeconomic data from 2002 to 2021, excluding post-2022 data due to reliability concerns. The model parameters are estimated by matching the empirical impulse responses of output, inflation, and interest rates to GPR shocks.
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