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The Price of War: Macroeconomic and Cross-Sectional Effects of Sanctions on Russia

Author

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  • Mikhail Mamonov
  • Anna Pestova
Abstract
How much do sanctions harm the sanctioned economy? We examine the case of Russia, which has faced three major waves of international sanctions over the last decade (in 2014, 2017, and 2022). In a VAR model of the Russian economy, we first apply sign restrictions to isolate shocks to international credit supply to proxy for the financial sanctions shocks. We provide a microeconomic foundation for the sign restriction approach by exploiting the syndicated loan deals in Russia. We then explore the effects of the overall sanctions shocks (financial, trade, technological, etc.) by employing a high-frequency identification (HFI) approach. Our HFI is based on each OFAC/EU sanction announcement and the associated daily changes in the yield-to-maturity of Russia’s US dollar-denominated sovereign bonds. Our macroeconomic estimates indicate that Russia’s GDP may have lost no more than 0.8% due to the financial sanctions shock, and up to 3.2% due to the overall sanctions shock cumulatively over the 2014–2015 period. In 2017, the respective effects are 0 and 0.5%, and in 2022, they are 8 and 12%. Our cross-sectional estimates show that the real income of richer households declines by 1.5–2.0% during the first year after the sanctions shock, whereas the real income of poorer households rises by 1.2% over the same period. Finally, we find that the real total revenue of large firms with high (low) TFPs declines by 2.2 (4.0)% during the first year after the sanctions shock, whereas the effects on small firms are close to zero. Overall, our results indicate heterogeneous effects of sanctions with richer households residing in big cities and larger firms with high TFPs being affected the most.

Suggested Citation

  • Mikhail Mamonov & Anna Pestova, 2023. "The Price of War: Macroeconomic and Cross-Sectional Effects of Sanctions on Russia," CERGE-EI Working Papers wp756, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
    • Handle: RePEc:cer:papers:wp756
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    More about this item

    Keywords

    Sanctions news shock; Monetary policy; Commodity terms-of-trade; High-frequency identification (HFI); Household income; TFP;
    All these keywords.

    JEL classification:

    • F51 - International Economics - - International Relations, National Security, and International Political Economy - - - International Conflicts; Negotiations; Sanctions
    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)

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