Does Geopolitical Risk Affect Inflation? Empirical Analysis of the Impact of Russia-Ukraine and Israel-Palestine Events on Türkiye

Geopolitical risk stemming from negative events such as war, terrorist acts and tensions, together with economic and political uncertainty, has a negative impact on economic activity. Therefore, this study aims to examine the impact of geopolitical concerns originating from Russia and Israel on the inflation level in Türkiye in the time period from January 2003 to January 2024. To achieve this objective, the series undergoes wavelet transformation and an analysis is conducted to determine if there are variations in the short-term, medium-term, and long-term effects. To account for structural discontinuities in the series, the Fourier quantile causality test was initially conducted. However, as the Fourier function did not yield significant results, the quantile causality test was then done. The data indicate that in the original series, unidirectional causation occurs only at the 0.1 quantile. However, in the converted series, causality is detected at the 0.8 quantile in the short run and at the 0.1 and 0.6 quantiles in the long run. This indicates that the long-term effect of geopolitical risk and other factors on inflation has become more significant in Türkiye. In line with the findings, recommendations were presented to policy makers and researchers.