Do political risks affect the ∆P index?
Yes, political risks can affect the ∆P index. The CMI model takes into account both endogenous and exogenous factors of influence.
Endogenous factors are those that originate within the economic system and are affected by the economic agents themselves, such as government policies on monetary and fiscal matters. For example, the political decision especially on the policy of quantitative easing.
Exogenous factors, on the other hand, originate outside the economic system and are beyond the control of economic agents, such as natural disasters or changes in global trade policies, and changes in terms of the supply of raw materials, goods, and technologies from other countries. For example, supply chain disruptions due to imperfect logistics service prices.
Political decisions can also impact exogenous factors, leading to a reaction or chain of events. For example, a political decision to impose tariffs on imported goods can lead to retaliatory actions from other countries, affecting the supply and demand for goods and materials, and ultimately impacting the ∆P index.
The CMI model’s ability to account for both endogenous (internal) and exogenous (external) factors allows it to provide a more accurate picture of the economy’s state, including the effects of political risks.