Geopolitical risks and their impact on global macro-financial stability: Literature and measurements.

In our paper, we provide a review of the literature to identify the main transmission channels through which geopolitical risks (GPR) influence macro-financial stability. We begin by analyzing the existing measures of geopolitical tensions and uncertainty, showing that GPR impacts economic and financial uncertainty episodically, with significant but transient spikes during major geopolitical events. The review then identifies the two principal channels through which GPR affects macro-financial stability: the financial channel, operating through increased uncertainty and heightened risk aversion, leading to shifts in investment portfolio allocations and cross-border capital flows; and the real economy channel, impacting global trade, supply chains, and commodity markets. Using data from the past two to three decades, we provide graphical analyses that confirm the findings in the literature, highlighting the episodic nature of the impact of GPR. These insights underscore the need for policymakers and financial institutions to adopt event-specific approaches to effectively mitigate the adverse effects of geopolitical risks on economic and financial systems. [ABSTRACT FROM AUTHOR]