Geopolitical Risks and Monetary Policy: Effects of Global Versus Ukrainian Shocks

ABSTRACT This paper investigates the effects of global and Ukrainian geopolitical shocks on monetary policy rates using country‐specific structural vector autoregression models for 29 economies for the monthly period between January 2000 and June 2025. The empirical results that control for the developments in oil prices, economic activity, inflation and nominal effective exchange rates suggest significant heterogeneity. Policy rates in several economies (e.g., Australia, Canada, United States) respond positively to global geopolitical shocks within 1 year, whereas a negative response is observed in others, including the Euro Area. In comparison, almost all economies have increased policy rates following Ukrainian geopolitical shocks, suggesting significant global inflationary pressures created by them. When the heterogeneity across countries is further investigated using cross‐country regressions, it is shown that countries more involved in global value chains conduct a relatively more accommodative monetary policy following global geopolitical shocks. This relationship is less clear for Ukrainian shocks, where financial development appears negatively correlated with the policy rate response. Important policy suggestions follow.