Assessing the economic impact of the global geopolitical-energy uncertainty index
Tam Hoang Nhat Dang  1@  , Faruk Balli  1@  , Hatice Ozer Balli  1@  , Hannah Nguyen  1@  
1 : Massey University

Employing the text-based method, we develop a novel index (the GEU index) measuring the geopolitical-energy uncertainties at the global scale during the 1996-2023 period. We based on the monthly Global reports of the Economist Intelligence Unit for searching the keywords to construct the index. We then evaluate the efficacy of the GEU index using different empirical techniques, such as the impulse response functions and the quantile connectedness approach. Our key findings are presented as follows. First, we observe that the GEU index coincides with several remarkable events occurring across the globe during the study period. Especially, the index tends to strongly react to both geopolitical events and energy shocks. Second, we find evidence that innovations of the GEU index could foreshadow the decreases in macroeconomic activities. Government fiscal indicators such as the current account balance, budget balance, and debt to GDP ratio are also significantly affected by the GEU index. Notably, a shock from the index is found to cause a significant decrease in global energy price indicators and a significant increase in the political risk. Last, the spillover effect analyses confirm the GEU index's efficacy in absorbing and reflecting most of country-level geopolitical risks as well as sectorlevel volatilities under different market conditions. The GEU index could be considered as a risk management tool for policymakers to stabilize the economy and energy markets as well as for market participants to adjust their investment portfolios in response to periods of high geopolitical-energy uncertainties.


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