The Impact of Geopolitical Tensions and The Divergent Trajectories of Monetary Policies

Abstract

This article analyzes the impact of geopolitical tensions and divergent monetary policy trajectories over the period 2010-2024. Using an econometric framework, the study shows that these geopolitical tensions exert both upward and downward pressure on policy rates, reflecting an active adaptation of monetary policies to external shocks in a context of increasing uncertainty. These responses can be interpreted as preventive measures against inflationary risks or as a signal of caution. However, the results reveal significant heterogeneity between countries, reflecting divergent monetary policy trajectories shaped by the specific institutional, economic, and political characteristics of each state. Although the explanatory power of the model remains moderate, the study's conclusions offer valuable insights for policymakers and international institutions facing an increasingly unstable geopolitical environment.