Geopolitical Risk Index

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We are pleased to host the Geopolitical Risk Index developed by Dario Caldara and Matteo Iacoviello at the Federal Reserve Board

Caldara and Iacoviello construct a monthly index of Geopolitical Risk (GPR Index) counting the occurrence of words related to geopolitical tensions in 11 leading international newspapers. The GPR index spikes around the Gulf War, after 9/11, during the 2003 Iraq invasion, during the 2014 Russia-Ukraine crisis, and after the Paris terrorist attacks.

The GPR index reflects automated text-search results of the electronic archives of 11 national and international newspapers: The Boston Globe, Chicago Tribune, The Daily Telegraph, Financial Times, The Globe and Mail, The Guardian, Los Angeles Times, The New York Times, The Times, The Wall Street Journal, and The Washington Post. Caldara and Iacoviello calculate the index by counting the number of articles related to geopolitical risk in each newspaper for each month (as a share of the total number of news articles). The index is then normalized to average a value of 100 in the 2000-2009 decade.

The search identifies articles containing references to six groups of words: Group 1 includes words associated with explicit mentions of geopolitical risk, as well as mentions of military-related tensions involving large regions of the world and a U.S. involvement. Group 2 includes words directly related to nuclear tensions. Groups 3 and 4 include mentions related to war threats and terrorist threats, respectively. Finally, Groups 5 and 6 aim at capturing press coverage of actual adverse geopolitical events (as opposed to just risks) which can be reasonably expected to lead to increases in geopolitical uncertainty, such as terrorist acts or the beginning of a war.

Based on the search groups above, Caldara and Iacoviello further disentangle the direct effect of adverse geopolitical events from the effect of pure geopolitical risks by constructing two indexes. The Geopolitical Threats (GPT) index only includes words belonging to Search groups 1 to 4 above. The Geopolitical Acts (GPA) index only includes words belonging to Search groups 5 and 6.

The Benchmark Index (GPR) uses 11 newspapers and starts in 1985. Caldara and Iacoviello use the same methodology to construct a Geopolitical Risk Historical Index (GPRH), which uses three newspapers and starts in 1899. The data are updated using the methodology described here.

The dataset also includes preliminary, monthly country-specific GPR indexes constructed for 18 emerging economies (Caldara, Iacoviello and Aaron Markiewitz, "Country-Specific Geopolitical Risk", in progress). It should be cited as: Caldara, Dario and Matteo Iacoviello, "Measuring Geopolitical Risk," working paper, Board of Governors of the Federal Reserve Board, 2017".