The Russian invasion of Ukraine and the exchange rate of the Polish zloty: A fallacy of monetary autonomy?

Borowski Jakub and Jaworski Krystian ()
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Borowski Jakub: Collegium of World Economy, SGH Warsaw School of Economics, Warsaw, Poland
Jaworski Krystian: Collegium of World Economy, SGH Warsaw School of Economics, Warsaw, Poland

International Journal of Management and Economics, 2024, vol. 60, issue 1, 33-45

Abstract: We use the Twitter application programming interface to construct a novel indicator capturing the varying perceptions of geopolitical risk related to the war in Ukraine. We show that the Twitter variable is a statistically significant determinant of the EUR/PLN exchange rate following the invasion. We estimate that the war in Ukraine was responsible for an increase in the EUR/PLN exchange rate of about 5.0% in the first 2 weeks following its breakout and that the weakening of PLN contributed to an increase of headline inflation in Poland by about 0.33 percentage points. Our findings suggest that monetary policy autonomy can be substantially constrained due to conflicts in nearby countries. Therefore, they provide an argument for Poland in seeking Eurozone membership as a way to contain the impact of geopolitical factors on exchange rate volatility, which is likely to remain at play in the longer run.

Keywords: conflict; currency volatility; geopolitical risk; regional spillovers; the Russia–Ukraine war (search for similar items in EconPapers)
JEL-codes: F31 F51 G15 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:vrs:ijomae:v:60:y:2024:i:1:p:33-45:n:4

DOI: 10.2478/ijme-2023-0026

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