The ripple effect: asymmetric geopolitical risks and the dynamics of India’s macroeconomic fundamentals – evidence from the local projection model

This study examines the asymmetric effects of geopolitical risk (GPR) on key macroeconomic fundamentals in India. Using a local projection model (LPM), we estimate the impulse response functions (IRFs) to assess the dynamic effects of GPR shocks and their asymmetry. We find that positive GPR shocks have a more pronounced effect on key macroeconomic variables than negative shocks. The presence of asymmetry is further confirmed using the Wald test. These findings highlight differential economic responses to rising vis-à-vis falling geopolitical tensions. The results have important implications for monetary policy, financial stability, and geopolitical risk management in an emerging economy such as India.