Geopolitical Risk, Exchange Rate Volatility, and Inflation Targeting in Emerging Europe: Evidence from CEE Economies and Implications for AI-Assisted Monetary Policy

The intensification of geopolitical tensions in recent years has significantly altered the macroeconomic environment, especially in emerging economies that are more vulnerable to external shocks. This paper explores the relationship between geopolitical risk, exchange rate volatility, and inflation dynamics, with a focus on emerging European economies. The existing scientific literature highlights the role of exchange rates as a key transmission channel through which external disturbances affect domestic price stability, particularly under inflation targeting frameworks. However, recent studies suggest that traditional monetary policy tools may be insufficient in the context of persistent geopolitical uncertainty.

The research adopts a qualitative and analytical methodology, examining recent developments in Romania and conducting a comparative analysis with Hungary, Poland, and the Czech Republic. The study investigates how geopolitical shocks propagate through financial, trade, and expectations-based channels, and formulates research questions regarding the effectiveness of monetary policy responses and the potential role of advanced analytical tools.

The findings indicate that geopolitical risks have increased exchange rate volatility across the region, with varying effects depending on institutional strength and policy strategies. Romania shows relatively stable exchange rate dynamics, while other countries exhibit higher volatility. The results also highlight the growing relevance of integrating advanced data-driven tools into central bank operations.

The paper contributes to the field by proposing a more flexible approach to inflation targeting, emphasizing the importance of exchange rate management and the integration of innovative analytical capacities. It offers a timely perspective on how monetary policy can adapt to a changing geopolitical and economic environment.