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Battle in Ukraine and high-frequency macroeconomic danger measures

Following the Russian invasion of Ukraine on 24 February 2022, monetary stress indicators out of the blue elevated. Utilizing this high-frequency day by day info conveyed by monetary markets, this column presents a newly developed mixed-frequency quantile regression mannequin with a view to quantify macro dangers within the euro space for the primary quarter of 2022. The authors present that macro draw back dangers perceived by monetary markets within the euro space are about thrice larger than these for the US economic system.

Editors’ observe: This column is a part of the Vox debate on the financial penalties of conflict.

The sudden Russian invasion of Ukraine generated an upward shift in varied dangers across the globe, starting from rising meals costs and their affect on poverty and inequalities (Artuc et al. 2022), to everlasting changes in international provide chains (Korn and Stemmler 2022). It seems that many monetary variables additionally reacted sharply quickly after the start of the conflict. Monitoring modifications in monetary stress gives useful info on the contribution of the monetary sector to present financial dangers. On this respect, Adrian et al. (2019) have proposed a quarterly growth-at-risk (GaR) method enabling the evaluation of macroeconomic dangers primarily based on monetary circumstances indexes. Not too long ago, we put ahead in a paper an prolonged model of the quarterly GaR by accounting for the high-frequency nature of economic circumstances indicators (Ferrara et al. 2022). Particularly, we use Bayesian mixed-data sampling (MIDAS) quantile regressions to use the knowledge content material of a monetary stress index, resulting in real-time high-frequency GaR measures for the euro space. This high-frequency method permits us to quickly quantify macro dangers associated to the conflict in Ukraine.  

Monetary stress within the euro space

The monetary stress indicator that we think about is the Composite Indicator of Systemic Stress (CISS), developed by the ECB (Holló et al. 2012). The principle methodological innovation of the CISS is the applying of primary portfolio idea to the aggregation of 5 market-specific sub-indexes: the international change market, the fairness market, the cash market, the bond market, and the monetary intermediaries. The aggregation takes under consideration time-varying cross-correlations between the 5 sub-indexes. Consequently, the CISS places comparatively extra weight on conditions by which stress prevails in a number of market segments on the identical time. Thus, it captures the concept that monetary stress is extra systemic and thus extra harmful for the economic system as a complete if monetary instability spreads extra broadly throughout the entire monetary system.

The day by day evolution of the euro space CISS till 28 March 2022 is offered in Determine 1. We noticed a pointy improve within the euro space index simply after the Russian invasion of Ukraine on 24 February. In mid-March 2022 the index reached a worth near 0.45, earlier than receding barely within the following days. Nevertheless, the worth of economic stress stays under that noticed originally of the Covid-19 disaster in 2020 and, in any case, removed from that noticed through the World Disaster or the euro space sovereign debt disaster. Fortunately, the ECB not too long ago put ahead a brand new CISS measure for the US permitting us to match each economies on the same foundation. It’s placing to see in Determine 1 that the US doesn’t appear to have been strongly affected by monetary stress – no less than to this point. 

Determine 1 Composite Indicator of systemic stress for the euro space and the US


Observe: CISS for the euro space (altering composition) and CISS information for the US are offered by the European Central Financial institution. Each day information till 28 March 2022.

Macroeconomic dangers within the euro space

Based mostly on this CISS, we not too long ago proposed a brand new econometric method to evaluate, on a high-frequency foundation, a GaR measure for the present euro space quarterly GDP development (Ferrara et al. 2022). The thought of our method is to increase the GaR initially put ahead by Adrian et al. (2019) by making the most of the high-frequency nature of economic circumstances indexes. To this finish, we developed a Bayesian mixed-frequency quantile regression mannequin with a view to gauge dangers to GDP development for the present quarter stemming from day by day monetary circumstances. Outcomes are offered within the type of a conditional distribution for present GDP development (nowcasting), from which conditional quantiles could be derived. Apparently, this train could be carried out every day, that’s, every time we get an replace of the CISS, offering us with high-frequency monitoring of macro dangers. 

Outcomes from an up to date model of our mannequin are given in Determine 2. We observe that inside a number of days, the likelihood density perform of conditional euro space GDP development for 2022q1 clearly shifted to the left. The worth estimated on 28 March reveals a thicker left tail, highlighting a rise in downward macro dangers within the wake of the beginning of the conflict in Ukraine. As regards the worth of the GaR at 10%, which could be thought of as the ten% quantile of this estimated conditional distribution, it went from -0.02% on 01 February to -0.90% on 28 March. 

Determine 2 Likelihood density features of conditional euro space GDP development in 2022q1

Observe: Authors’ computation primarily based on Ferrara, Mogliani, Sahuc (2022)

Macroeconomic dangers within the US

Based mostly on the brand new US CISS measure, we additionally estimated the same Bayesian mixed-frequency mannequin for the US economic system. The likelihood density features of conditional US GDP development for 2022q1, estimated at varied dates, are offered in Determine 3. The shift to the left between 01 February and 28 March is much less marked than for the euro space: the GaR (10%) goes from 0.30% on 1 February to 0.03% on 28 March. So general, the GaR (10%) misplaced solely about 0.30 percentate factors within the US, in comparison with 0.90 percentate factors within the euro space. This end result means that macro dangers within the euro space are thrice larger in comparison with these within the US, primarily as a consequence of larger publicity to Russia by way of commodity imports (Bachmann et al. 2022).  

Determine 3 Likelihood density features of conditional US GDP development in 2022q1

Observe: Authors’ computation primarily based on Ferrara et al. (2022). 


Adrian, T, N Boyarchenko, and D Giannone (2019), “Susceptible development”, American Financial Overview 109(4): 1236–1289. 

Artuc, E, G Falcone, G Porto and B Rijkers (2022), “Battle-induced meals worth inflation imperils the poor”,, 01 April. 

Bachmann, R, D Baqaee, C Bayer, M Kuhn, A Löschel, B Moll, A Peichl, Ok Pittel and M Schularick (2022), “What if Germany is lower off from Russian power?”,, 25 March.

Ferrara, L, M Mogliani and J G Sahuc (2022), “Excessive-frequency monitoring of Development-at-Threat”, Worldwide Journal of Forecasting 38: 582-595. 

Holló, D, M Kremer and M Lo Duca (2012), “CISS – A composite indicator of systemic stress within the monetary system”, European Central Financial institution Working Paper No. 1426.

Korn, T and H Stemmler (2022), “Russia’s conflict in opposition to Ukraine would possibly persistently shift international provide chains”,, 31 March.



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