The economic impact of the Ukraine-Russia war on European countries

Extend abstract

The war between Ukraine and Russia and more specifically Russia's military invasion of Ukrainian territory have shocked the global financial markets. Several researchers have shown interest in the war between Ukraine and Russia by conducting related studies. These studies relate to the economic effects of war, exchange rates, energy, food, etc. Certain of these studies are used as a guide to carry for our research. For instance, Abbassi et al. (2023), Boubaker et al. (2022), Boungou & Yatié (2022), Umar et al. (2022), Zhou et al. (2023). Thus, the purpose of our paper is to study and analyze the economic impact of the Ukraine-Russia war on the countries of Europe. For this reason, we use four indicators. Finally, the indicators, the period and the methodology of our study are then analyzed in detail.

The variables of our analysis are following four indicators:

• The index CCRETT01EZM661N, which is related to the financial market and more specifically to the real effective exchange rates based on the consumer price index for the euro area with name "Real Effective Exchange Rates".
• The index ENRGY0EZ19M086NEST, which is related to the consumer price index and more specifically to energy for the euro area with name "Energy".
• The index CP0000EZ19M086NEST, which is related to the consumer price index and more specifically to all items for the euro area with name "Items".
• The index CP0110EZ19M086NEST, which is related to the consumer price index and more specifically to food for the euro area with name "Food".

Our data source is the Federal Reserve Economic Data database (FRED) for all indicators. The sample of our study covers the period of approximately two years extending from January 1, 2022, to June 1, 2024. In addition, our sample includes monthly observations.

Furthermore, in this paragraph we describe our methodology. First, we test about the stationarity of the series using the Dickey-Fuller augmented unit root test (ADF-test). We continue with a test that shows the existence or non-existence of a short-term relationship between the variables. The best-known test from the relevant literature is the Granger causality test which is applied to the stationary series. Next, our empirical study proceeds with multiple linear regression.The independent variables are the variable "Energy", the variable "Items" and the variable "Food", and the dependent variable is the variable "Real Effective Exchange Rates".

According to the findings of our study a causal relationship in one direction is observed. More specifically, the changes in the variables "Items" and "Food" cause the changes in the variable "Real Effective Exchange Rates". Whereas a bidirectional causal relationship is observed from the variable "Energy" to the variable "Real Effective Exchange Rates".  Also, this causal relationship shows that there is a short-term relationship between these two variables, the variable "Energy" and the variable "Real Effective Exchange Rates". Of course, according to the multiple linear regression method, the results differ. Therefore, we conclude that the war between Ukraine and Russia affected the European financial markets and the real effective exchange rates