Peer-reviewed Paper

Blagov, B., M. Dirks and M. Funke (2025): Economic Knock-On Effects of Russia's Geopolitical Risk on Advanced Economies: A Global VAR Approach, Macroeconomic Dynamics, 29.

Abstract: Using a Bayesian Global VAR model as a methodological tool, we analyze how heightened geopolitical risk shocks propagate across advanced economies and quantify the economic effects of these events. The global VAR impulse response functions in response to the skyrocketing Russian geopolitical risk after Russia’s invasion of Ukraine revealed a contraction of GDP and an increase in inflation. Eastern European and Baltic countries are particularly affected by the Russian geopolitical risk shock. We also document a strong component of the Russian geopolitical risk shock that is not driven by fossil fuel prices. 

Dirks, M. and T. Schmidt (2024), Political instability and Economic growth: Causation and Transmission, European Journal of Political Economy, 85 (102586).

Abstract: This paper examines the link between political instability and economic growth in 34 advanced economies from 1996 to 2020. First, we use a panel VAR estimated via the System GMM to explore the endogenous relationship between economic growth and political instability and identify transmission channels. Second, we employ an instrumental variable approach, exploiting temperature variation and spillover effects of political instability to establish causality. The results of both approaches indicate that a one-standard deviation shock of political instability significantly and substantially reduces economic output. We find no evidence, however, that economic growth affects political instability. 

D’Orazio, P. and M. Dirks (2022): Exploring the Effects of Climate-Related Financial Policies on Carbon Emissions in G20 Countries: A Panel Quantile Regression Approach, Environmental Science and Pollution Research 29(5): 7678-7702,.

Abstract: This paper studies the effects of financial development, economic growth, and climate-related financial policies on carbon emissions for G20 countries. The focus is particularly on financial policies implemented to scale up green finance and address climate-related financial risks from 2000 to 2017 and represent this paper’s value added. The empirical results obtained by relying on the panel quantile regression approach indicate that the impacts of the different explanatory variables on carbon emission are heterogeneous. Specifically, the effect of the stock of short-term financial policies on carbon emissions is negative, and its effect becomes smaller at higher quantiles. The stock of long-term policies also shows significant negative coefficients, but its impact is stronger for higher quantiles. No significance is reported for the lowest quantile. Financial development contributes to improving environmental quality, and its impact is larger in higher emission countries. Energy consumption increases carbon emissions, with the strongest effects occurring at higher quantiles. Our results also support the validity of the EKC relationship and positive effects of GDP and population on high carbon emissions levels. Estimation results are robust to alternative model specifications and after controlling for the role played by adopting international climate change mitigation policies as proxied by the adoption of the Kyoto Protocol.