Hasan, Zulfikar and Mohd. Zain, Nor Razinah and Syahrizan, Mohammad (2026) Policy tools under pressure: how central banks respond to financial risk from alliance shifts and global trade volatility. Journal of Economics and Sustainability, 8 (2). pp. 39-54. E-ISSN 2637-1294
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Abstract
This study investigates how central banks across 35 advanced and emerging economies adjust their monetary policy instruments in response to evolving financial risks arising from shifting geopolitical alliances and global trade volatility between 2010 and 2023. Employing advanced panel econometric techniques, including System Generalised Method of Moments (System GMM), this paper quantifies the dynamic effects of geopolitical risk (GPR) and global trade uncertainty (GTUI) indices on policy interest rates. The findings reveal that both GPR and GTUI exert significant tightening ressure on monetary policy, with emerging markets displaying heightened sensitivity compared to advanced economies. Robustness checks confirm the stability of these results across alternative model specifications and subsamples. Further analysis using impulse-response functions demonstrates the temporal dynamics of policy rate adjustments following shocks to geopolitical risk. The study contributes to the literature by integrating multidimensional global risk measures into the evaluation of central bank behaviour, providing critical insights for policymakers navigating complex international financial environments characterised by alliance shifts and trade disruptions.
| Item Type: | Article (Journal) |
|---|---|
| Uncontrolled Keywords: | Central banks, emerging markets, geopolitical risk, global trade uncertainty, monetary policy |
| Subjects: | H Social Sciences > HA Statistics H Social Sciences > HF Commerce H Social Sciences > HJ Public Finance K Law > K559 Comparative Law |
| Kulliyyahs/Centres/Divisions/Institutes (Can select more than one option. Press CONTROL button): | Kulliyyah of Economics and Management Sciences |
| Depositing User: | Asst. Prof Nor Razinah Mohd. Zain |
| Date Deposited: | 02 Sep 2026 16:22 |
| Last Update: | 02 Sep 2026 16:22 |
| Queue Number: | 2026-08-Q4963 |
| URI: | http://irep.iium.edu.my/id/eprint/131069 |
| Indexed In: | Google Scholar, MyCite |
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