The Economic Consequences of the War

Debate Moderator(s):  Luis Garicano, Dominic Rohner, Beatrice Weder di Mauro

We find ourselves faced with an unspeakable tragedy, a major war breaking out, and it takes place right in Europe.  There are few certainties right now, but what is clear is that this war will have deep geopolitical and economic consequences which will be felt by all of us; the scars of this war will be deep and long lasting and they will infiltrate some of the foundations of the current world order.

In the face of tragedy, there is a role for science to play in understanding the economic consequences of what we witness and how to mitigate them. The purpose of this VoxEU debate page is to collect analytical contributions on the economic consequences of the War. As for all VoxEU columns, the contributions are analytical and evidence based.

The focus lies on a variety of dimensions linked to all fields of economics. First of all, there is a particular emphasis on major environmental consequences, such as the rethinking of energy policy and the acceleration of the transition towards green energy. This is also linked to issues of the resilience of global value chains in the face of war-induced deglobalization, as well as the global food production and markets that is hit hard by fighting in a major hub of worldwide grain production. Second, international economic consequences also encompass questions of financial (de)globalization, refugees and migration.

A third set of consequences of the war are rooted within political and public economics. In particular, European security and integration questions are at the forefront, as are issues linked to the impact of sanctions, and the fiscal costs and trade-offs. Fourth, macroeconomic effects of the war include shocks to reserve currencies and the international monetary system, as well as questions of inflation and monetary policy. Last but not least, the impacts of the war on education, health and human and social capital deserve a special emphasis.

Video & Audio contributions to this debate:

War in Ukraine, impact in Africa. The effect of soaring energy and food prices Rabah Arezki, Video, 17 March 2022

Russia under sanctions. The political economy of Putin's war in Ukraine Sergei Guriev, Video, 14 March 2022

Raising the pressure on Putin Luis Garicano, Audio, 05 March 2022

Central Bank Sanctions on Russia Stephen Cecchetti, Kim Schoenholtz, Video, 04 March 2022

Webinar: A Blueprint for the Reconstruction of Ukraine - Moderator: Martin Sandbu;  Panellists: Torbjörn Becker, Yuriy Gorodnichenko, Sergei Guriev, Simon Johnson, Tymofiy Mylovanov, Kenneth Rogoff, Beatrice Weder di Mauro - 20 April 2022

Special Publications: 

A Blueprint for the Reconstruction of Ukraine

Policy Insight 116:How to implement an EU embargo on Russian oil


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Lead Commentaries

Oleg Itskhoki, Dmitry Mukhin , 16 May 2022

Despite an increasing number of sanctions imposed on the Russian economy since its invasion of Ukraine in February 2022, the ruble has appreciated back to its pre-war level. This column argues that the prevalence of import over export sanctions and the financial repression imposed in Russia, which lowered the local demand for foreign currency, have driven the appreciation. Despite the opposite effects on the exchange rate, the sanctions on imports and exports are equivalent in terms of their impact on consumption, welfare, and government fiscal losses. Nonetheless, the level of the exchange rate remains relevant for imports, savings, and monetary policy.

Michael Dooley, Peter Garber, David Folkerts-Landau , 12 May 2022

Recent sanctions imposed by the US on Russia have called into question the US dollar’s dominant role as a reserve currency. This column argues that sanctions will, in fact, reinforce the dollar’s dominance rather than weakening it. It emphasises the importance of ‘collateral’ demand for reserves, especially by developing countries. Countries which choose to exit the dollar bloc will have restricted ability to reassure foreign investors, which could impact a growth strategy that involves participation of centre country capital.

Deborah Winkler, Lucie Wuester , 11 May 2022

The trade disruptions resulting from Russia’s invasion of Ukraine have revealed the vulnerabilities of relying on a limited range of suppliers for imports with few substitutes. This column shows that the impact of the war through Russia’s participation in global value chains relates to its ‘upstream’ position.  Countries in closer geographic proximity to Russia face higher risks due to their greater direct trade links with Russia. But the countries that will be affected most severely are those in global value chains reliant on products from Russia with fewer substitutes, such as rare metals.

Mevlude Akbulut-Yuksel , 10 May 2022

The Russian invasion of Ukraine has forced millions of Ukrainian children to leave their schools and homes. Such adverse shocks early in life can have profound long-term effects. This column presents evidence from WWII and the Vietnam War of how childhood war exposure had detrimental effects on education, physical and mental health, and labour market outcomes, even decades after the conflicts. The effects were most pronounced for girls and children of lower socioeconomic status. Policies that prioritise children are essential to reduce the enduring effects of war.

Maksym Chepeliev, Maryla Maliszewska, Maria Filipa Seara e Pereira , 06 May 2022

The Russian invasion of Ukraine is disrupting global supplies of essential commodities, pushing prices higher, slowing trade, and driving down incomes. This column argues that developing countries that are large agricultural and energy importers are being hit hardest. While some commodity exporters might be able to step up exports to benefit from increasing global prices, they could experience a restructuring of their trade patterns, resulting in a lower integration into global value chains. Consumers across the world are worse off, with the poorest being impacted the most adversely.

Kornel Mahlstein, Christine McDaniel, Simon Schropp, Marinos Tsigas , 06 May 2022

As relations between the West and Russia deteriorate, the imposition of a complete trade embargo by Allies on Russia appears increasingly likely. Using computable general equilibrium modelling, this column explores the short- to medium-term economic effects of such an Allied trade embargo. It finds that Russia would likely sustain sizable losses of upwards of 14% of real GDP. Allied economies are unevenly affected by the sanctions, with real GDP losses between 0.1% and 1.6%. Finally, if Russia were to impose countersanctions, rather than being a sanction target, losses to the Russian economy would be even greater.

Michele Ruta , 05 May 2022

The war in Ukraine has suddenly increased geopolitical risks. This column argues that firms will respond to the shock by reassessing security-related risks, leading to changes in the structure of supply chains. But given the capital in place, the cost of searching for alternatives, and factors such as wage differentials across countries, this process is likely to be gradual rather than sudden and will affect different sectors and products differently. It will not result in a reversal of globalisation, unless it is supported by pronounced government intervention.

Alvaro Espitia, Simon Evenett, Nadia Rocha, Michele Ruta , 04 May 2022

Ukraine and Russia play an outsized role in global markets for key crops. Disruption to food prices and supplies arising from the conflict is being felt thousands of miles away, and not only in net food-importing countries. This column shows that governments are exacerbating matters through unilateral resort to export curbs. Bans on wheat exports alone are responsible for a 7 percentage point increase in world wheat prices (roughly one-sixth of the observed price surge) and risk igniting a multiplier effect. Assurances of adequate food supply must be provided by other suppliers.

Sandeep Baliga , 02 May 2022

The Russian invasion of Ukraine has been met with coordinated sanctions. Sanctions are designed to incentivise cooperation, but this column argues that those being used in practice are scattershot. Instead, sanctions on oil and gas exports are the most effective way to maximise the probability that Russia ceases its misguided attack on Ukraine. Such sanctions are most likely to target the elite who are closest to President Putin. Also, it is important that cooperation is defined clearly and to not go as far as regime change in Russia.

Alex Cukierman , 29 April 2022

Russia’s invasion of Ukraine has stoked tensions between Western democracies and Russia, presenting the risk of an explicit conflictual situation. This column explores the bargaining advantages of democratically elected leaders relative to autocratic ones. The typically shorter terms in office of democratic leaders and greater accountability to their populations contributes to a greater aversion to armed conflict, as does the freer flow of information and typically greater aversion to military casualties. This lends insight to Western democracies’ refrainment from direct involvement in the Ukraine war.

Noam Angrist, Simeon Djankov, Pinelopi Goldberg, Harry Patrinos , 27 April 2022

School disruptions due to war, pandemics, or natural disasters can have persistent negative effects on learning outcomes. This column estimates the learning losses due to the Russian invasion of Ukraine. From a position of relative parity with its neighbours pre-pandemic, learning outcomes in Ukraine are now estimated to be below the lowest-performing countries in Europe. Opening classes for Ukrainian refugees, providing online or by-phone tutoring, or adapting curricula for refugees can help minimise the long-term impacts of the conflict.

Tilman Eichstädt , 26 April 2022

With the Donbas and towns in other regions of Ukraine rattled by the second phase of the Ukraine war, Germany and the rest of Europe are still struggling to find an effective response to the Russian aggression. This column uses negotiation analysis and non-cooperative game theory to argue that import taxes or tariffs can be a very effective way to influence the duration of the conflict. Implementing these in a clear step-by-step approach would increase the time pressure on Russia to end the war and raise the credibility of further actions.

Raphaël Lafrogne-Joussier, Andrei Levchenko, Julien Martin, Isabelle Mejean , 24 April 2022

What are the potential costs of cutting Russian energy imports as a further tightening of the sanction regime? One of the many uncertainties regarding the size of these costs is related to the diffusion and amplification of the shock in production networks. This column discusses what can be learned on this topic from the analysis of firm-level data. Micro-level evidence suggests that some firms adjust, mitigating the effects of the shock. However, exposure to these shocks is heterogenous across firms. This has distributional consequences, with less exposed firms gaining market shares over more exposed ones.

François Langot, Franck Malherbet, Riccardo Norbiato, Fabien Tripier , 22 April 2022

Following the invasion of Ukraine, the EU and the international community imposed financial sanctions and trade restrictions on Russia. This column analyses the costs for Russia and the EU of further trade restrictions with varying intensity. It shows that an embargo only by the EU would cost Russia three times as much as it would cost the EU. However, if an embargo were imposed by the EU and other countries ‘unfriendly’ to Russia, the relative cost would be 13 times higher for Russia. The adage that there is strength in unity has never been more relevant.

Ming Deng, Markus Leippold, Alexander Wagner, Qian Wang , 21 April 2022

Is the geopolitical crisis due to the Russian invasion of Ukraine likely to accelerate or retard the transition to a low-carbon economy? This column argues that stock prices reactions offer a preview of the future economic impact of the Russia-Ukraine war. These reactions suggest that the speed of transition to a low-carbon economy appears to be diverging between the US and Europe. These results obtain while controlling for ESG measures, inflation exposure, and international exposure of firms.

Anette Hosoi, Simon Johnson , 20 April 2022

The Russian war on Ukraine is financed in large part by the export of oil, and while countries have intensified various sanctions on Putin’s leadership group and the Russian economy, Russian oil export revenues since the invasion on 24 February have risen. A new CEPR Policy Insight argues that if the objective is to reduce Western financing of the Russian military effort, the only logical next step is for the US, the EU, the UK, and others to prohibit all Russian oil and oil product exports, and to make it illegal to carry such cargo in European-owned tankers.

Geghetsik Afunts, Misina Cato, Susanne Helmschrott, Tobias Schmidt , 20 April 2022

Russia’s invasion of Ukraine will likely pose new challenges to the global economic recovery by affecting energy prices and inflation rates. This column uses a quasi-experimental analysis to document the impact on inflation expectations of consumers in Germany. The authors find that both short-term and long-term inflation expectations increased as an immediate result of the invasion. This increase can partially be attributed to consumers’ fear of soaring energy prices.

Tilman Brück, Michele Di Maio, Sami Miaari , 19 April 2022

Among the most pervasive of the economic consequences of conflict are those affecting children’s education outcomes. Focusing on the Second Intifada in the West Bank, this column documents how conflict events reduce Palestinian high-school students’ probability of passing their final exam, the total test score at the exam, and thus the probability of being admitted to university. Worryingly for conflict-affected counties like Ukraine, the negative effect of conflict on academic achievement may also have long-lasting consequences.

Jonathan Federle, André Meier, Gernot Müller, Victor Sehn , 18 April 2022

The economic impact of global disasters differs vastly across space. The stock market reaction to the Russian invasion of Ukraine illustrates this clearly. This column compares the cumulative equity returns in 66 countries during a four-week window centred around 24 February 2022. The authors find a large ‘proximity penalty’ worth about 2.6 percentage points for every 1,000 kilometres a country is closer to Ukraine. Trade-related spillovers account for about two-thirds of this penalty. 

Anna Pestova, Mikhail Mamonov, Steven Ongena , 15 April 2022

Following Russia’s invasion of Ukraine on 24 February 2022, the US, Europe, and many other countries imposed new economic sanctions on Russia. This column assesses the economic effects of these sanctions using a structural vector auto-regression model of the Russian economy. The findings suggest that industrial production, consumption, and investment will all decline, and that Russian GDP will contract by -12.5% to -16.5% in 2022. Nevertheless, the Russian economy will continue to rely on its existing export model, which may be difficult to undermine, even with potential oil and gas embargoes. 

Patricia Justino , 14 April 2022

The current and future civilian impacts of the war in Ukraine are immense. This column argues that the levels of vulnerability and resistance of civilians in wartime depend on three factors: the nature of violence during the war causing economic, psychological, and social disruption; the effectiveness of coping strategies employed by civilians, which depend on both economic needs and targeting by the enemy; and civilians’ own agency to both resist and shape the behaviour of armed forces. The Ukraine war is causing unmeasurable civilian suffering, but civilians may nonetheless shape the course of the conflict.

John Sturm , 13 April 2022

As Russia’s invasion of Ukraine continues, EU policymakers are weighing more severe sanctions. This column argues that unlike a full energy embargo, introducing small EU tariffs on energy imports from Russia could weaken the Russian economy while simultaneously making the EU better off. While larger tariffs would come at a cost to the EU, they are likely to be more efficient than other sanctions already in place.

Sumru Altuğ, Sevcan Yesiltas , 13 April 2022

The 2014 Ukraine crisis resulted in sanctions being imposed on the Russian economy. This column analyses the economic uncertainty these sanctions generated and the impact on investment by Russian non-financial firms. It shows that investment in the non-financial sector declined after the sanctions were imposed. Sectoral variation in foreign exchange debt exposure, oil cost dependence, and exposure of inputs to indirect sanctions are all important mechanisms through which the heightened uncertainty operated. This has important implications for the Russian economy, which is facing severe sanctions as a result of the current war with Ukraine.

Sebastian Horn, Carmen Reinhart, Christoph Trebesch , 08 April 2022

China and Russia have built close financial ties over the past ten years, with Russia becoming the largest recipient of Belt and Road lending. Given the sums at stake, the war in Ukraine is putting China’s overseas lending portfolio at higher risk than ever before. This column argues that this is likely to make Chinese state-owned banks more cautious in extending fresh international loans and in rolling over old ones. Because China is a common lender to many developing countries, they now face the added risk of a ‘sudden stop’ in foreign lending. 

Torbjörn Becker, Barry Eichengreen, Yuriy Gorodnichenko, Sergei Guriev, Simon Johnson, Tymofiy Mylovanov, Kenneth Rogoff, Beatrice Weder di Mauro , 07 April 2022

The scale of destruction in Ukraine is already staggering. A new CEPR publication builds on prior experiences with reconstruction following both wars and natural disasters to outline some principles for the future reconstruction of Ukraine. Efforts should include putting the country on the path to EU accession; establishing a stand-alone EU-authorised agency with autonomy to coordinate and manage aid and reconstruction programmes; recognising that Ukraine must own its reconstruction; encouraging inflows of foreign capital and technology transfers; a focus on grants rather than loans; and rebuilding around the principle of a zero-carbon future.

Laurent Ferrara, Matteo Mogliani, Jean-Guillaume Sahuc , 07 April 2022

Following the Russian invasion of Ukraine on 24 February 2022, financial stress indicators suddenly increased. Using this high-frequency daily information conveyed by financial markets, this column presents a newly developed mixed-frequency quantile regression model in order to quantify macro risks in the euro area for the first quarter of 2022. The authors show that macro downside risks perceived by financial markets in the euro area are about three times higher than those for the US economy.

Viktor Tsyrennikov , 06 April 2022

Since Russia’s full-scale offensive began in late February 2022, many civilians have died and Ukraine has suffered massive destruction of its infrastructure. This column attempts to put a figure to the economic damage suffered by Ukraine by comparing its growth path to that of similar Eastern European countries. It estimates that the combined effect of Russia’s 2014 invasion and the current war will cause damage in the region of $1.36 trillion to the Ukrainian economy. And unless there is a large spur in Ukraine’s growth potential, these losses will continue to grow for several year.

Markus K Brunnermeier, Harold James, Jean-Pierre Landau , 05 April 2022

The freezing of Russian foreign exchange reserves will have long-term and systemic consequences. This column argues, however, that the dominant role of the dollar as a reserve currency will be unaffected. No other country can provide the world with a large, liquid government bond market and a fully open capital account. Sanctions may have significant long-term effects on the demand for reserves. Countries may reduce their dependence on reserves by limiting their exposure to financial shocks and partially restricting capital movements. The international monetary system may evolve towards to a new architecture, where cross-border financial integration is reduced.

Rabah Arezki, Per Magnus Nysveen , 01 April 2022

The sanctions placed on Russian oil may give new impetus to the energy transition by encouraging developed economies to find new sources of energy. Current policy has focused largely on supply-side responses to manage this development; this column argues that demand-side policies may also play a critical role. The authors argue for policies that increase the price elasticity of oil demand, such as incentives for individuals to switch to electric vehicles through subsidies. Nonetheless, they emphasise that the distributional effects of policies, including carbon pricing, are politically important and cannot be ignored. 

Erhan Artuc, Guillermo Falcone, Guido Porto, Bob Rijkers , 01 April 2022

The conflict in Ukraine has led to a surge in food prices, particularly wheat and corn. This column uses a newly developed toolkit to analyse the welfare impacts of food price inflation on households in developing countries. Average household welfare decreases in 43 of 53 countries in the sample, with an average real income loss of -1.5%. This impact varies substantially both across and within countries, with poorer households suffering systematically larger welfare losses. Protracted price increases will have long-term consequences for prosperity in many of these countries, exacerbating issues of poverty and inequality.

Tobias Korn, Henry Stemmler , 31 March 2022

The war Russia is waging against Ukraine has already halted most of Ukraine’s production capabilities. Similarly, the sanctions raised against Russia by the international community end decades of economic cooperation across several economic sectors. This column draws on empirical evidence from over two decades of civil wars across the world to inform the debate on how international supply chains will adjust to the economic disruptions brought by violence, and how likely it is that the international economy will ever return to the pre-war situation.

Daniel Gros , 30 March 2022

In the search for additional sanctions against Russia, one idea which is often discussed is for the EU, or individual Member States, to ban imports of Russian gas. The economic consequences of such a step would be very severe in the short run. This column makes the case for an alternative measure that would minimise economic disruptions and which would have a strong impact on the revenues flowing to Russia – a special import tariff on Russian gas.

Tommaso Frattini, Irene Solmone , 30 March 2022

More than three million Ukrainians have left their country since the start of the war on 24 February. Due to mandatory conscription of men in Ukraine, the majority of these refugees are women and children. This column explores the labour market integration of immigrant women in Europe using data from the past two decades. It shows that immigrant women face a double disadvantage determined by both their gender and immigration status, and their labour market outcomes have not improved over time. These disadvantages should be considered when designing policies to increase labour market participation and success. 

Eddy Bekkers, Carlos Góes , 29 March 2022

The war in Ukraine and the sanctions imposed on Russia have intensified the debate on the economic repercussions of a shift in global trade policy focus from mutual economic benefits of open trade policies to geopolitical considerations limiting interdependence. This column finds that a potential decoupling of the global trading system into two blocs – a US-centric and a China-centric bloc – would reduce global welfare in 2040 compared to a baseline by about 5%. Losses would be largest (more than 10%) in low-income regions that benefit most from positive technology spillovers from trade.

Alexander Mihailov , 29 March 2022

In response to sanctions imposed on Russia following the invasion of Ukraine, President Putin recently announced that ‘unfriendly’ countries would have to pay for Russian gas (and perhaps oil in the future) in roubles. This column discusses the possible reasons for the announcement and the potential economic and financial implications if Putin were to follow through on it. 

Sascha O. Becker , 29 March 2022

Millions of people have fled Ukraine as a result of Russia’s invasion in February 2022. This column argues that the massive refugee flow requires a united response from European countries, including the UK. Beyond providing shelter and food, it emphasises the importance of access to education for refugees. Episodes of forced migration following WWII underscore the importance of human capital accumulation. Ultimately, providing timely access to education can be a silver lining of forced migration, allowing refugees to invest in a brighter future. 

Pauline Grosjean , 28 March 2022

Conflict durably shapes how individuals view the state and interact with each other. This column uses data from more than 35,000 individuals in 35 countries to show how conflict victimisation in WWII left a negative imprint on levels of political trust throughout Europe and Central Asia that has persisted over generations. The author also finds a lasting impact of pre-WWI empires on political trust and democratic capital that varies even across regions that have since been integrated into the same country. The findings have implications for Ukraine, a country that experienced both a divided history and some of the highest victimisation rates in WWII. 

Mark Harrison , 25 March 2022

Economic warfare, including blockades of essential goods and bombings of industry, was widely used in WWII but with limited impact. This column explores Mançur Olson’s explanation, which is underpinned by the elementary economic concept of substitution. Olson argued that there are no essential goods; there are only essential uses, which can generally be supplied in many ways. This has sweeping implications for the use of economic sanctions, which can be applied to the present context of Russia’s aggression against Ukraine.

Rüdiger Bachmann, David Baqaee, Christian Bayer, Moritz Kuhn, Andreas Löschel, Benjamin Moll, Andreas Peichl, Karen Pittel, Moritz Schularick , 25 March 2022

Germany depends on Russia for about one-third of its total energy consumption. If it is cut off from Russian energy imports, Germany will need to compensate through alternative supply sources, fuel shifting and economic reallocation, or demand reduction. The macroeconomic fallout would depend on how much the production structure can adjust and how substitutable the imports from Russia are by imports from other suppliers. This column shows that the effects of an estimated 30% shortfall of gas supplies are likely to be substantial but manageable, with a GDP decline in the range of 0.5% to 3%.  

Yevhenii Skok , 25 March 2022

Are the Ukrainian economy and financial system holding up to Russia's bombardment? Yevhenii Skok tells Tim Phillips whether emergency policies have been able to maintain liquidity and financial stability, how much damage has been done to Ukraine's productive capacity, and what a post-war financial rebuild would look like.

Part of a series of commentaries on the economic consequences of the conflict in Ukraine.

John Muellbauer, Janine Aron , 24 March 2022

A key common feature of the global climate crisis and the Global Financial Crisis (GFC) lies in destabilising feedback loops. This column identifies and compares these highly non-linear processes, with lessons for policymakers and modellers. The cascades and contagion of the financial accelerator have climate parallels. Absent decisive action, accumulating greenhouse gases, in raising global temperatures, will lead to more carbon release and even higher temperatures, ultimately rendering much of the planet uninhabitable. Russia’s war creates immediate separate crises for the financial and global climate systems. By delaying approaches to net zero, their linkages increase future financial stability risks.

Richard Berner, Stephen Cecchetti, Kim Schoenholtz , 21 March 2022

The sanctions on Russia in response to its invasion of Ukraine are the most powerful and costly punishments imposed on a major economy at least since the Cold War. This column poses and provisionally answers a series of questions raised by the sanction regime, covering issues such as secondary sanctions, Russia’s supposed ‘war chest’ of currency reserves, the roles of SWIFT and crypto, Russia’s options for retaliation, and the potential for systemic risk arising from the sanctions and any retaliation.

Yevhenii Skok, Oliver de Groot , 17 March 2022

The war in Ukraine is a humanitarian catastrophe, but how has the Ukrainian economy held up? This column examines the policies by the National Bank of Ukraine and the international financial community to maintain liquidity and financial stability in the country. It provides a brief monetary history of Ukraine, documents the policy actions of the past few weeks, and explores the challenges ahead.

Pascal Seiler , 12 March 2022

Until recently, central banks such as the ECB and the Swiss National Bank considered the current rise in inflation to be temporary, albeit more persistent than expected. This column uses survey data from Switzerland and a quasi-experimental research design to show that companies’ long-term inflation expectations have increased significantly following Russia’s invasion of Ukraine, especially in manufacturing. In this sector, higher energy and commodity prices prove particularly important in motivating price increases. These findings add to concerns about de-anchored inflation expectations and, as a result, more persistent inflationary pressures.

Patrick O'Brien, Nuno Palma , 12 March 2022

Special wartime monetary policies have successfully been used on numerous occasions throughout history. This column describes how the Bank of England played a decisive role in supporting the British economy during the French Wars of 1793-1815. Rapid increases in military expenditure during wartime were supported by liquid and low-inflation government financing as well as reputable management of debt levels. In this light, current sanctions on the Bank of Russia could lead to long-term changes to Russia’s economy and political system as well. 

Jon Danielsson , 11 March 2022

The cryptocurrency exchanges have only done what is legally required of them when sanctioning Russia for its invasion of Ukraine, unlike the mainstream financial institutions whose restrictions on the Russians generally exceeds what is required by law. This column argues that the implications for the future of cryptocurrencies will be considerable.

Jon Danielsson, Charles Goodhart, Robert Macrae , 10 March 2022

The Western countries have sanctioned Russia in a way not applied to any globally integrated major power in over a century, ever since 1914. This column argues that there are lessons to be learned from the 1914 systemic crisis and that high inflation and government debt will make it difficult to contain a crisis today if one emerges. 

Maksym Chepeliev, Thomas Hertel, Dominique van der Mensbrugghe , 09 March 2022

In response to the invasion of Ukraine, most OECD countries have announced punishing sanctions against Russia. But the sanctions have so far failed to target Russia’s primary source of foreign exchange – exports of fossil fuels. This column argues that while the short-term impact of restricting Russia’s fossil fuel exports on EU households’ real income would be non-trivial, the longer-term cost would be more modest and would be offset by considerable environment co-benefits. Meanwhile, the adverse impacts on the Russian economy would be overwhelming.

Ohyun Kwon, Constantinos Syropoulos, Yoto Yotov , 04 March 2022

Sanctions are now a central tool of governments’ foreign policy. This column examines the extraterritorial impact of sanctions on trade and welfare, and finds that the big extraterritorial burden of sanctions falls on target countries, whose trade with third countries is reduced significantly. Surprisingly, trade between senders and third countries increases due to sanctions. Thus, extraterritorial sanctions appear to be a stick and carrot for third countries, with the net effects depending on the size of the target and sender states and on the economic ties between the third countries/regions.