A Simple Model of Geopolitical Risk and Sanctions

Dados Bibliográficos

ID21393030
AutoresVivien Lewis (0000-0002-2048-3340, Deutsche Bundesbank & CEPR Frankfurt am Main Germany, autor correspondente), Sirikorn Puangjit (Deutsche Bundesbank & Goethe University Frankfurt Frankfurt am Main Germany)
Ano2026
Volume73
Fascículo3
Data de publicação2026-07-01
Peer ReviewedSim
Open AccessSim
TipoARTICLE
PeriódicoScottish Journal of Political Economy (JOURNAL)
Identificadores do periódicoISSN: 0036-9292 • E-ISSN: 1467-9485
EditoraWiley (PUBLISHER • GB)
DOI10.1111/sjpe.70061
OpenAlexW4416175817
IdiomaEN
Citações recebidas1
Referências citadas36

Geopolitical risk (GPR) shocks that trigger the imposition of sanctions tend to lower output and raise inflation in the sanctioned country. We develop a three‐equation small open economy New Keynesian model where GPR shocks are modeled as negative productivity shocks and sanctions manifest as import tariffs in response to GPR increases. We calibrate the GPR process, sanction rule, and interest rate rule to match the observed dynamics of the GPR index, output, inflation, and the policy rate in Russian data. The sanction response to GPR allows the resulting model to capture the empirical impulse responses well. Additionally, we find that Russia's monetary policy rule is more accommodative than prescribed by the standard Taylor rule. Although this may reflect policy preferences, recent theoretical results indicate that such a policy stance may be optimal when sanctions act as cost‐push shocks that shift the Phillips Curve

Dynamic stochastic general equilibrium · Economic sanctions · Geopolitics · Impulse response · Inflation (cosmology) · Interest rate · Monetary policy · New Keynesian economics · Sanctions · Economic and Technological Developments in Russia · Economic Sanctions and International Relations · Russia and Soviet political economy