Uncertainty about the war in Ukraine: Measurement and effects on the German business cycle

Moritz Grebe, Sinem Kandemir and Peter Tillmann

No 184, IMFS Working Paper Series from Goethe University Frankfurt, Institute for Monetary and Financial Stability (IMFS)

Abstract: We assemble a data set of more than eight million German Twitter posts related to the war in Ukraine. Based on state-of-the-art methods of text analysis, we construct a daily index of uncertainty about the war as perceived by German Twitter. The approach also allows us to separate this index into uncertainty about sanctions against Russia, energy policy and other dimensions. We then estimate a VAR model with daily financial and macroeconomic data and identify an exogenous uncertainty shock. The increase in uncertainty has strong effects on financial markets and causes a significant decline in economic activity as well as an increase in expected inflation. We find the effects of uncertainty to be particularly strong in the first months of the war.

Keywords: war; Twitter; geopolitical risk; machine learning; business cycle (search for similar items in EconPapers)
JEL-codes: D8 E3 G1 (search for similar items in EconPapers)
Date: 2023
New Economics Papers: this item is included in nep-big and nep-cis
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:imfswp:184

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