# Geopolitics, Geoeconomics, and Sovereign Risk: Different Shocks, Different Channels

arXiv: https://arxiv.org/abs/2510.12416 · HTML: https://mlsanity.com/paper/2510.12416/

## Key facts

- No citing papers in the map yet (data through 14 Oct 2026).
- Builds on 3 of its 72 references that are in the map.
- First posted on arXiv 14 Oct 2025.

## Builds on (most cited first, 3 of 3)

- [A Unified Approach to Interpreting Model Predictions](https://mlsanity.com/paper/1705.07874/) (2017)
- [Machine Learning Methods Economists Should Know About](https://mlsanity.com/paper/1903.10075/) (2019)
- [Applied Causal Inference Powered by ML and AI](https://mlsanity.com/paper/2403.02467/) (2024)

## Abstract (arXiv)

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.