Economic Consequences of the Conflict in Ukraine

Kai Gehring, 29 May 2022

The response of EU member states to war in Ukraine has been significant and largely coordinated. Will this outside threat have lasting effects on common identity and cooperation? This column shows that the 2014 Russian invasion of Ukraine had a persistent positive effect on a EU common identity, translating into greater trust in EU institutions and greater support for cooperation at the EU level. Given the extent of the 2022 invasion of Ukraine and the perceived threat to the EU, it is also likely to have a sizeable effect.

Morteza Ghomi, Isabel Micó-Millán, Evi Pappa, 28 May 2022

Financing the green transition while consolidating fiscal budgets is a challenging task for many European countries. This column argues that the Spanish Christmas Lottery – with its high level of participation, large prizes, and geographic clustering of winners – offers an example of an unconventional fiscal policy tool for increasing aggregate revenues and stimulating local demand without crowding out aggregate activity. Lottery winnings reduce unemployment and increase job creation and CPI prices, especially during recessions. Even households in winning provinces that do not win themselves significantly increase their durable consumption six months after the shock. 

Darrell Duffie, Thierry Foucault, Laura Veldkamp, Xavier Vives, 27 May 2022

Recent cutting-edge technologies such as machine learning and artificial intelligence, as well as the expansion of FinTech and BigTech companies into finance, have accelerated the digitalisation of financial services. The fourth report in the The Future of Banking series from the IESE Business School and CEPR focuses on three aspects: (i) the disruption of payment systems due to the emergence of digital currencies, with a particular focus on central bank digital currency; (ii) the benefits and risks of the use of massive data for the provision of financial services; and (iii) the electronification of securities trading and its effect on trading costs and market quality.

Philip Verwimp, 27 May 2022

Since February, more than six million Ukrainians have left their country and as many have been internally displaced. As the Ukrainian army is a male-only institution, the war has led to the separation of many men from their spouses and children. This column argues that this factor may have unintended, long-term consequences for the welfare of Ukrainian households. It warns that a protracted war creates risks of intra-household conflict and higher divorce rates among these transnational household units. 

Luca Fornaro, Federica Romei, 27 May 2022

Since the start of the pandemic, global demand for tradable goods relative to non-tradable services has been exceptionally high. This column argues that this unusual demand pattern can push the global economy into stagflation, driven by scarcity of tradable goods. Countries running trade deficits export high inflation abroad, while policies that boost production of tradable goods and current account surpluses act as a benign disinflationary force. Due to a free riding problem, national monetary authorities may fall into a coordination trap leading to excessively high unemployment. High energy prices exacerbate all these effects. 

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