The Bank for International Settlements has published a working paper that develops euro area specific geopolitical risk indicators from local European newspapers at daily and monthly frequencies and uses them to assess the macroeconomic effects of geopolitical shocks in the euro area. In the authors' analysis, a euro area geopolitical risk shock acts like an adverse supply shock, lowering economic activity, raising prices and prompting monetary policy tightening, while commonly used Anglosphere measures based on English-language sources understate these effects and can even miss the contraction in production. The paper finds that the euro area and Anglosphere measures have diverged notably since 2022, with euro area geopolitical risk remaining persistently higher after the war in Ukraine. Using a "No-War" counterfactual that holds geopolitical risk at its December 2021 level, the authors estimate that the war left euro area industrial production about 1.3% lower by May 2022 and broad consumer prices about 0.6% higher by June 2022, with the policy rate about 0.5 percentage points higher by June 2022. The analysis also introduces euro area news-based indicators for sanctions intensity and shortages, finding that shortages are an important channel for inflationary effects while sanctions play only a limited aggregate role. Forward-looking scenarios for current Middle East conflicts show the euro area outlook is highly sensitive to whether geopolitical risk escalates or de-escalates.
Bank for International Settlements 2026-05-15
Bank for International Settlements publishes working paper introducing euro area geopolitical risk indicators and showing Anglosphere measures understate macro effects
The Bank for International Settlements has published a working paper constructing euro area geopolitical risk indicators from local newspapers to assess the macroeconomic effects of geopolitical shocks. The authors find these shocks resemble adverse supply shocks, with the war in Ukraine estimated to have reduced industrial production by about 1.3%, raised consumer prices by about 0.6% and lifted policy rates by about 0.5 percentage points by mid-2022, while Anglosphere measures understate these effects. The paper also introduces sanctions and shortages indicators, concluding that shortages are a key inflation channel and that the euro area outlook is highly sensitive to future geopolitical developments.