EU Sanctions on Russia and Implications for a Small Open Economy: The Case of Cyprus

Konstantinos Mavrigiannakis and Stelios Sakkas ()
Additional contact information
Konstantinos Mavrigiannakis: University of Cyprus
Stelios Sakkas: University of Cyprus

Open Economies Review, 2025, vol. 36, issue 3, No 2, 745-780

Abstract: Abstract This paper aims at assessing quantitatively the macroeconomic impact of EU sanctions against Russia for the economy of Cyprus. To this end, we use a medium-scale micro-founded DSGE model of a small open economy participating in a currency union like the euro area calibrated to the economy of Cyprus. The model features two sectors of production, namely the tradable and the non-tradable one. In this model, EU sanctions influence the sanctioning economy (i.e. Cyprus) through a mix of foreign shocks that hit in principle the tradable sector. In particular, to mimic the economic environment (namely, how all this started in 2022), we analyze first the effects of an energy-type shock modeled as a standard cost-push shock on imported goods. In turn, we add to this economic environment the impact of policy reactions like EU sanctions against Russia. In this context and given the strong trade ties of Cyprus with Russia, we model sanctions as two simultaneous negative exogenous shocks, that is, a temporary decrease in the exported goods, reflecting primarily reductions observed in tourism and financial services, and in inward foreign direct investment (FDI). Contrary to the mild impacts reported in the literature for the majority of EU countries we find non negligible negative effects for the economy of Cyprus which range from 1.24% to 3.13% in terms of average output loss in the short run. Given Cyprus’s vulnerable external position we show that the impact of sanctions depends crucially on the degree of tightening financing conditions which are likely to hit particularly more countries with high initial current account deficits and debt stocks.

Keywords: Cyprus; Economic sanctions; Trade disintegration (search for similar items in EconPapers)
JEL-codes: F16 F51 (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
http://link.springer.com/10.1007/s11079-024-09786-1 Abstract (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kap:openec:v:36:y:2025:i:3:d:10.1007_s11079-024-09786-1

Ordering information: This journal article can be ordered from
http://www.springer. ... cs/journal/11079/PS2

DOI: 10.1007/s11079-024-09786-1

Access Statistics for this article

Open Economies Review is currently edited by G.S. Tavlas

More articles in Open Economies Review from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().