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Working Paper
Financial market reactions to the Russian invasion of Ukraine
This article analyzes financial market reactions to the Russia-Ukraine war with a focus on the opening weeks. Markets did not completely anticipate the war and asset price reactions strengthened from the first week—when there were hopes for a quick resolution—to the second week, when prices generally peaked and began to partially revert to pre-war values. Exposure to commodity trade and trade with Russia-Ukraine determined market perceptions of the riskiness of equity and foreign exchange assets. Credit default swap prices on sovereign debt and breakeven inflation rates indicate that ...
Working Paper
On the Economic Mechanics of Warfare
A large literature is concerned with war finance, but there is little by way of understanding how war-related expenditures affect the economically-relevant outcomes of wars, e.g., prevailing side, duration, or destruction and casualties. I present a model of attrition in which I characterize the effects of resources on the outcomes of war for a military conclusion (when one side cannot fight anymore) and a political conclusion (when one side does not want to fight anymore). I discuss the role of GDP for both types of conclusion. I also analyze the mechanics of third-party support to a small ...
Working Paper
Measuring Geopolitical Risk
We present a monthly indicator of geopolitical risk based on a tally of newspaper articles covering geopolitical tensions, and examine its evolution and effects since 1985. The geopolitical risk (GPR) index spikes around the Gulf War, after 9/11, during the 2003 Iraq invasion, during the 2014 Russia-Ukraine crisis, and after the Paris terrorist attacks. High geopolitical risk leads to a decline in real activity, lower stock returns, and movements in capital flows away from emerging economies and towards advanced economies. When we decompose the index into threats and acts components, the ...
Working Paper
On the Economic Mechanics of Warfare
The literature on war deals with finances, causes, or consequences. But, how do war-related expenditures affect economically-relevant outcomes at a war’s conclusion (e.g., prevailing side, duration, and casualties)? I present a model of attrition and characterize the effects of GDP at a military conclusion (one side cannot fight anymore) and a political conclusion (one side quits). The estimated model fits the data for the battle of Iwo Jima well. Analyzing data for the current Russo-Ukrainian war through the lenses of the model suggests that additional support to Ukraine could yield a ...
Working Paper
Measuring Geopolitical Risk
We present a news-based measure of adverse geopolitical events and associated risks. The geopolitical risk (GPR) index spikes around the two world wars, at the beginning of the Korean War, during the Cuban Missile Crisis, and after 9/11. Higher geopolitical risk foreshadows lower investment and employment and is associated with higher disaster probability and larger downside risks. The adverse consequences of the GPR index are driven by both the threat and the realization of adverse geopolitical events. We complement our aggregate measures with industry- and firm-level indicators of ...
Working Paper
On the Economic Mechanics of Warfare
The literature on war deals with finances, causes, or consequences. But, how do war-related expenditures affect economically-relevant outcomes at a war’s conclusion (e.g., prevailing side, duration, and casualties)? I present a model of attrition and characterize the effects of GDP at a military conclusion (one side cannot fight anymore) and a political conclusion (one side quits). The estimated model fits the data for the battle of Iwo Jima well. Analyzing data for the current Russo-Ukrainian war through the lenses of the model suggests that additional support to Ukraine could yield a ...
Working Paper
On the Economic Mechanics of Warfare
A large literature is concerned with the consequences of war-related expenditures and how to finance them. Yet, there is little by way of understanding how expenditures affect the outcomes of wars, e.g., prevailing side, duration, or total destruction. I present a model of attrition in which I characterize the effects of resources on the outcomes of war for a military conclusion (when one side cannot fight anymore) and a political conclusion (when one side does not want to fight anymore). I discuss the role of GDP for both types of conclusions. I also analyze the mechanics of third-party ...