The Economic Impact of Russia's Invasion of Ukraine on European Countries – a SVAR Approach

ABSTRACT We quantify the economic impact of Russia's invasion of Ukraine on Germany, the United Kingdom, France, and Italy using data on historical geopolitical events. Employing a structural VAR approach based on zero, sign, and narrative sign restrictions, and accounting for regional shocks to capture country‐specific effects, our analysis reveals a drag on real economic activity and a significant increase in inflation due to the war. In a counterfactual scenario without the invasion, we find that consumer prices in European countries would have been 2.3% to 5.8% lower in 2023‐Q4. Additionally, global consumer prices would have risen 2.5% less, and energy prices would have been 24% lower. The war also triggered a significant decline in both global and local economic sentiment, resulting in lower consumer confidence and reduced global demand. Without the war, GDP in European countries could have been between 1.4% and 2.4% higher by the end of 2023.