Geopolitical shocks affect small open economies through multiple, correlated channels, yet applied CGE analyses typically impose the timing and persistence of those shocks by assumption. This paper develops a two-stage SVAR–CGE framework that links econometrically identified shock dynamics to general-equilibrium welfare evaluation for Thailand. First, a seven-variable narrative SVAR estimated on monthly data for 2000–2025, identified using the Caldara–Iacoviello Geopolitical Risk Index, is used to recover the persistence of five transmission channels: oil prices, shipping costs, exchange rates, tourism demand, and private investment. Second, these estimated persistence parameters discipline the shock paths in a 22-sector recursive comparative-static CGE model calibrated to Thailand’s 2025 Social Accounting Matrix and simulated over three annual periods using a present-value integral transformation. Under the baseline shock bundle, GDP declines by 3.18% and CPI increases by 5.49%, with welfare losses exhibiting a bimodal distributional pattern—largest for Q1 through consumption-share exposure and for Q4 through tradeable-sector intensity—departing from the monotonically regressive pattern in single-channel analyses. Policy simulations show that targeted transfers calibrated to income rank dominate a universal fuel subsidy on fiscal efficiency, welfare effectiveness (welfare multiplier 1.377 vs. 0.334), and progressivity (1.00 vs. 0.94), at half the fiscal cost (1.48% vs. 2.97% of baseline GDP). An additional bimodal-targeting scenario (S4) at identical fiscal cost underperforms income-rank targeting on all metrics, confirming the latter as the robust second-best instrument under LES preferences with strong MPC heterogeneity. These rankings are supported by the central calibration of a 9-point sensitivity grid, with partial corroboration at off-baseline configurations. The paper contributes by showing that empirically disciplining inter-annual shock dynamics in CGE analysis can materially alter policy conclusions under correlated multi-channel external shocks, shifting the preferred response from sector-specific price subsidies toward demand-side household transfers.
Montchai Pinitjitsamut (Fri,) studied this question.