Conflict and exchange rate valuation: Evidence from the Russia-Ukraine conflict

Abstract

The Russian-Ukraine conflict is decisive in determining the course of contemporary global politics. The war has a spillover effect, with potentially considerable direct and indirect consequences on economic activity. Therefore, the study evaluates the causal impact of the Russian-Ukraine conflict on the exchange rate of Russia. The results explore that the conflict has a negative effect on the exchange rate and observed rapid depreciation. The outcomes show a rapid divergence from counterfactual predictions, and the actual exchange rate is consistently lower than would have been expected in the absence of conflict. The point-wise causal effect displays an estimate of the exchange rate depreciation following the conflict. In relative terms, the response variable decrease, suggesting that currency depreciation is observed during the intervention period. The counterfactual prediction provides a robust technique for evaluating the size of shocks and can be used as a reference to estimate the genuine impact of the conflict in various ways.

Keywords

• Exchange rate
• Ukraine conflict
• Causal inference
• Conflict
• Counterfactual predicting