- Geopolitical Risks, Inflation Pressure, and the U.S.
Treasury Yield Curve
- Linlin Niu, Haoran Bai, Zhiwu Hong
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- 2616 20260205 () Views:128
- The U.S. Treasury yields reached a 20-year high under acute inflation pressure in the post-pandemic era amid aggravated geopolitical conflicts. To quantify the underlying effects of regional geopolitical risks (GPRs) of key U.S. strategic interests, we employ an extended affine term structure model with unspanned GPRs and conventional macroeconomic drivers. We find that GPR shocks, particularly those manifesting U.S.-China rivalry, contribute more to expectations and variations of inflation and yields than shocks to U.S. macroeconomic variables. The results warn on the adequacy of monetary
policy in curbing inffation in a fragmented global order with escalating GPRs.
- JEL-Codes: C32; E31; E43; E44; F51
- Keywords: geopolitical risk; yield curve; inflation; term structure model
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