Risk Regimes and Price Stability: Threshold Effects of Geopolitical Risk, Economic Policy Uncertainty, and Energy-Related Uncertainty on Inflation in G7 Economies

Heightened geopolitical tensions, policy shocks, and energy-market turbulence have renewed concerns about price stability in advanced economies. This paper examines whether geopolitical risk (GPR), economic policy uncertainty (EPU), and energy-related uncertainty (EUI) are associated with inflation linearly or through distinct risk regimes. Monthly data for Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States from 2013M2 to 2023M10 are analysed using second-generation panel methods accounting for cross-sectional dependence and slope heterogeneity. CS-ARDL, CCEMG, AMG, and CCEP estimates indicate positive inflation associations for GPR and, most robustly, EUI, while EPU exhibits only weak linear significance. Block-bootstrap tests identify significant thresholds for GPR and EUI, with weaker evidence for EPU. Dynamic CCE threshold estimates show that the long-run inflation association with EUI is several times stronger above its threshold, primarily during the 2022 energy crisis. This amplification survives alternative controls and specifications but loses significance when 2022 is excluded, indicating crisis-driven regime identification. Lagged estimates suggest delayed inflation responses to EPU, while quantile regression reveals stronger associations at higher inflation levels. Panel causality tests identify predictive content for GPR but not EPU or EUI, while inflation predicts all three uncertainty indices. The findings are interpreted as conditional, regime-dependent associations rather than structural causal effects, supporting risk-sensitive monetary and energy policies that treat estimated thresholds as sample-specific benchmarks rather than mechanical policy triggers.

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