The impact of the Russian invasion of Ukraine on euro area activity via the uncertainty channel

Alina Bobasu and Roberto A. De Santis

Economic Bulletin Boxes, 2022, vol. 4

Abstract: Russia’s invasion of Ukraine has hit economic confidence and increased uncertainty in the euro area. This box illustrates how the increased uncertainty is being transmitted to the economy, adopting a two-step approach. In the first step, the uncertainty shock is identified using a structural vector autoregression model with sign and narrative restrictions. In the second step, the identified shock is used to compute losses in domestic demand, employing local projection methods. The box shows that the uncertainty shock witnessed in the period to April will have a material adverse impact on domestic demand, estimated to be larger for business investment than for consumption. Across sectors, the effect is estimated to be larger for manufacturing than for services and larger for durable goods than for non‑durables. JEL Classification: E21, E32

Keywords: economic activity; Uncertainty (search for similar items in EconPapers)
Date: 2022-06
Note: 185689
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbbox:2022:0004:2

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