Geopolitical Risk and the Financial Effects of US Monetary Tightening: Evidence on Capital Flows and Currency Volatility in Emerging Asia (2015–2026)

This study is an attempt to discuss the relationship between geopolitical risk, US monetary policy, capital flows and exchange rate volatility in emerging Asian economies during the period 2015-2026. The impact of geopolitical uncertainty and global monetary conditions has been studied separately in the literature, but the combined and time-varying effect of these two factors on the financial stability of emerging markets has been less studied (Dario Caldara & Matteo Iacoviello, 2018; Hélène Rey, 2018).
To fill this void, this paper examines the impacts of geopolitical risk and US monetary tightening on the magnitude and stochastic properties of capital flows in emerging Asia and how this affects exchange rate fluctuations. The economies of the region are especially vulnerable to external shocks as well as shifts in global liquidity conditions (Rey, 2018; Aizenman et al., 2022).
This study offers fresh evidence linking the transmission of external shocks to financial channels in the presence of a non-linear, asymmetric, and time-varying relationship between variables, which are captured by an advanced econometric framework (Balcılar et al., 2021; Primiceri, 2005). The results provide a more complex picture of financial spillovers internationally and identify the context in which emerging markets are particularly exposed (Salisu et al., 2021).
Evidence is drawn from a panel of six emerging Asian economies - India, Indonesia, Malaysia, Thailand, Vietnam, and the Philippines - over 2015–2026. Overall, the results have significant policy implications for policymakers aiming to enhance financial resilience in a more interconnected and uncertain global environment.

Geopolitical Risk Index (GPR); US Federal Reserve Policy; Capital Flow Volatility; Exchange Rate Dynamics

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