Álvaro Ortiz – Geopolitics, geoeconomics, and sovereign risk with texts

Geopolitical and geoeconomic shocks reprice sovereign credit risk through different transmission channels. Using a daily panel of 42 advanced and emerging economies over 2018–2025, we show that geopolitical shocks raise sovereign CDS spreads primarily through direct sovereign repricing, while the Global Financial Cycle (GFC) channel moves in the opposite direction and partly offsets that increase — a “scissors pattern.” Geoeconomic shocks, by contrast, transmit mainly through financial conditions, policy uncertainty, and domestic amplification, with only a limited direct repricing component. A semistructural framework provides sign benchmarks for four transmission channels, and a Shapley–Taylor decomposition of nonlinear machine-learning predictions partitions each observation’s spread into Direct, GFC, Uncertainty, and Local components. Narrative local projections around four dated crisis events recover the scissors pattern for Russia–Ukraine and support the broader channel taxonomy in the remaining episodes. Additional scorecard, placebo, and sign-restricted SVAR evidence corroborates the taxonomy beyond the baseline ML decomposition. Geopolitical direct effects decay with distance from the conflict zone in a gravity-style pattern (R2 = 0.35 for Russia–Ukraine), while policy-uncertainty shocks activate the Uncertainty channel more globally. The taxonomy implies that liquidity provision can mitigate GFC-driven spread widening, but not direct geopolitical sovereign repricing.