Title : Monetary Policy Reaction to Geopolitical Risks: Some Nonlinear Evidence
Author(s) : William Ginn, Jamel Saadaoui
Abstract : 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 linear and nonlinear local projections (LP) regression models. First, the linear model suggests that the interest rate remains relatively unchanged in the event of an uncertainty shock. Second, the result turns out to be different in the nonlinear model, where the policy reaction is muted during an expansionary state, which is operating in a manner proportional to the transitory shock. However, geopolitical risks can amplify the policy reaction during a non-expansionary period.
Key-words : Monetary Policy, Linear and Nonlinear Local Projections, Geopolitical Risk, Economic Policy Uncertainty.
JEL Classification : F44, E44
