w/
@sguriev
we argue that European embargo on Russian oil and gas is the fastest way to end the war by stopping Putin’s ability to finance it. Any other policy option is more costly and dangerous. It is not just a humanitarian, but also an economic imperative for Europe. 1/n
A comment I often hear: oil/gas embargo has little effect on Putin’s ability to continue the war. This is wrong.
In fact, the correct calculus: each marginal euro received from energy exports to Europe contributes exactly one euro to the war in Europe, as simple as that. 1/n
Мы считаем, что действия руководства России наносят огромный ущерб будущему России. Развязывая войну против Украины, руководители России действуют против интересов российских граждан. Мы требуем немедленного прекращения агрессии!
I am bewildered by the arguments I occasionally hear from my European colleagues and friends, including that putin needs a “face-saving exit so he can gracefully resign” and that the costs of shutting down gas supplies from Russia are too high. 1/n
Yes, this embargo is costly for Europe, but its costs are manageable. More importantly, not imposing the embargo has much larger costs. Pre-war status quo is not an option. The war is an economic disaster for Europe, prolonging it will result in much higher economic costs. 3/n
Foreign cash Putin receives is used to continue the war in Europe. Depletion of foreign currency undermines Putin's ability to finance it, but also to pay policemen & propagandists - the key pillars of his oppressive regime at home, making further foreign aggression inviable. 4/n
Indisputably, embargo hurts ordinary Russians. Yet, not imposing sanctions does not help them, as Putin reorients Russia’s fiscal resources towards this war, and has already destroyed welfare of hundred million people. Rebuilding Russian economy requires stopping the war. 6/n
What we know for sure is that every euro received for Russian exports is used by Putin to finance his war against Europe currently fought in Ukraine. We also now know approximate magnitudes of war expenditure - €500m/day - comparable to what Europe pays Russia…
Complete export substitution towards China and other countries is impossible. More importantly, the embargo is the ultimate statement of resolve and unity from the West, which will make it much easier to bring China onboard… 5/n
Therefore, every marginal euro of exports now goes directly to the war fund. The ability to redirect energy exports to other countries is very limited, whether by sea or by pipelines East. So one-for-one is the correct estimate. It is in Europe's hands to stop it now. n/n
President Biden
@POTUS
, would you hold your word, and hold Putin accountable?
Speaker Johnson
@SpeakerJohnson
, would you do your job and hold the vote on the aid to Ukraine on your floor?
We need your leadership.
RU ruble depreciated ~100% since its peak of 53 rub/USD last summer to ~100 now. The pace⬆️ this summer since Prigozhin mutiny and expropriations of West./private companies
Time to step up fin+export sanctions to further limit fiscal space for Putin’s war efforts in 🇺🇦/elsewhere
Why? Because domestic constraints are kept tight and all spare resources are devoted to the war, right now or later after a short break to regroup (it is myopic to expect Putin stops with an effective military defeat when the original goal was to occupy Kyiv in one week). 2/n
Impossible to comprehend how our
@PrincetonEcon
@PrincetonBCF
doctoral student, now
@Cambridge_Uni
Professor, has to fight in a war in Europe against the aggression of my country of birth. Unbearable shame. This war has to be stopped.
My hometown of
#Kyiv
today is beautiful as ever. I say this naturally as a proud sixth-generation Kyivan (from my mother's side), taking a Sunday stroll around
#Andriivskyi
descent. While the oligarchs continue to flee the country on their private jets, thereby putting their ...
The goal of policy should be to minimize the possibility of such catastrophic events. The longer the war in Ukraine proceeds, the greater the possibility of further escalation beyond Ukraine. Thus, a regime of extreme economic pressure on putin is necessary immediately. 5/n
At current level of sanctions, Putin has enough resources to resolve his domestic fiscal constraints, at least temporarily: both domestic fiscal commitments to pay pensions and public sector salaries, and stabilize the financial system and the exchange rate (a symbolic goal). 3/n
Central Europe since 1990 is a most underappreciated growth miracle. Institutional pool of the EU allowed these countries to effectively complete the transition from developing to developed in three decades, a rare (if not exceptional) feat historically. 1/n
This graph tells a lot. At the beginning of the transition 30 years ago, Russians were richer than people in all newly-market East and North European countries. Now, they are poorer, on average, than all of them. For two major reasons: first, the depth of the 1990s crisis, and,
Very impressed by the precision of our forecast of the Ruble exchange rate with
@MukhinDA
which we made back in August based on a calibration of our model using the likely path of Russian exports and imports. The model predicts 75 ruble per dollar at the one year mark of the war.
Статья с Максимом
@mironov_fm
про мобилизацию:
Принудительный призыв сотен тысяч россиян на войну в Украине обернется дополнительными десятками тысяч бессмысленно потерянных молодых жизней уже в первые месяцы. 1/
Перед российским гражданским обществом сейчас стоит выбор между массовым протестом против мобилизации и войны и потерей многих десятков тысяч молодых жизней. 4/4
This war is putin’s legacy, there is no face-saving exit for him. However, the absolute majority among Russian “elites” do not want to live in a mixture of Soviet Union and North Korea which Russia will turn into if the war carries on. 7/n
It is also crucial to engage China to isolate putin’s regime. China has arguably a lot to lose from economic turmoil from further escalation of the war in Europe. n/n
While putin may have military resources, it is important to keep in mind that his position is extremely weak in light of his military failures in Ukraine and the economic collapse in Russia. He is a liability to everybody in Russia, and Russian “elites” are well aware of it. 6/n
Extreme economic pressure from sanctions and embargo will act to further coordinate the dissenting Russian “elites”. It is crucial to emphasize that these sanctions are in place until Russia can provide credible assurances of no further aggression in Ukraine or elsewhere. 8/n
Nonetheless, I think this misses the main argument. One needs to think of the possible tree of events, and consider the branches that lead to a complete catastrophe of a much larger escalation of military action in Europe. 3/n
It is crucial to avoid direct military conflict of western countries with Russia, which is what putin aspires to (including possible use of nuclear weapons, as casually discussed on Russian TV), as this is his only way to improve his otherwise very weak bargaining position. 9/n
AEA panel "The Economic Implications of the Russian War in Ukraine" organized by
@YGorodnichenko
My portion on the effects of sanctions on the Russian economy starts from minute 6 here:
I applaud the work of
@ben_moll
and co-authors to quantify the costs of gas supply shut down and share the moral arguments in tweets by
@HannoLustig
and
@BachmannRudi
against financing putin’s war in Ukraine. 2/n
Interesting analysis, which nonetheless misses a few important points about export sanctions. Summary in thread below, formal analysis see Corollary 1
1) While indeed export and import sanctions achieve the same goal (due to Lerner equivalence), ... 1/n
New at THE OVERSHOOT:
On the Russian Oil Sanctions
<-- The new oil sanctions will add to the pressure, but at substantially higher cost to the allies and the rest of the world.
Good news is that Russian imports fell further in April compared to March.
Но эта стратегия не позволяет существенно изменить количество призванных и отправленных на войну в первые месяцы кампании, и как следствие избежать безвозвратной потери жизней. 3/
Навальный, конечно, пишет веселые и жизнерадостные посты, но в них он не напишет о том, что в ночь с пятницы на субботу к нему в камеру вызывали скорую из-за вновь обострившейся после очередного ШИЗО болезни желудка. Неизвестной болезни, от которой его никто не лечит.
… Without these revenues, sustaining this war is not feasible. We also know the vast extent of military recruitment in Russia and $2-4k/month payment promises to soldiers - about an order of magnitude above typical Russian salaries. All sustained by export revenues.
there is no doubt left that Russia is a mafia-captured state in its entirety, and it's been this way for a long time, sadly this stayed largely unnoticed by the world before the full scale war in Ukraine has begun last year
One might think that Russia is a huge country with a lot of people. Yet the judge Sergei Podoprigorov who sentenced
@vkaramurza
to 25 years today is the same judge who ordered the arrest of lawyer Sergei Magnitsky in 2008 who was then killed in jail.
@Billbrowder
's best-seller
One of the questions we ponder in this paper: Can exchange rate be generically reconstructed by no arbitrage from other asset returns (e.g. stocks and bonds) and discount factors that price them?
An analytical framework that characterizes the link between exchange rates and finance across all conceivable market structures, from Mikhail Chernov, Valentin Haddad, and
@itskhoki
AEA panel "The Economic Implications of the Russian War in Ukraine" organized by
@YGorodnichenko
My portion on the effects of sanctions on the Russian economy starts from minute 6 here:
Updated draft: Sanctions and the Exchange Rate (ER)
Two new insights: 1. share of exports in gov revenue and of imports in GDP determine the effectiveness of sanctions, but surprisingly this is independent whether sanctions are on imports or exports 1/3
A devastating failure of the US government to protect its citizens, including government officials, against a systematic attack by rogue hostile foreign state. How are we not taking it with all seriousness it demands?
Even though these swaps give putin the perverse incentives to take more international hostages, it is a joyful day to see these extraordinary people freed in exchange for uncovered spies and criminals that are sent back to Russia.
The Insider (ie
@christogrozev
) has the full list of today’s exchanged prisoners:
Freed from Russia:
✹ Evan Gershkovich
✹ Vladimir Kara-Murza
✹ Lilia Chanysheva
✹ Ilya Yashin
✹ Ksenia Fadeeva
✹ Andrei Pivovarov
✹ Paul Whelan
✹ Alsu Kurmasheva
✹
This provides an optimistic prospect for former Soviet states (Ukraine, Moldova, free Belarus, Armenia, Georgia, perhaps Kazhakstan) if they can escape the corrupt insitutional pool of Putin's Russia and be in the pool of attraction of European insitutions. n/n
In addition to capital outflows, the major challenge are fiscal deficits driven by military expenditures, again despite high world oil prices.
Limits on export revenues would now go a long way in making financing Putin's war increasingly costly economically and politically.
Depreciation driven by capital outflows, which started as soon as the war, but were offset by record-high trade surplus in spring 2022. Since, exports started coming down and imports recovered; capital outflow persisted, hence persistent trend depreciation since last summer.
I wish everybody courage and resolve. Everybody will need it now, irrespective of our actions or lack thereof. Putin escaped the bounds of Russia and came to Europe.
Prigozhin mutiny and expropriation/nationalization of companies accelerated this trend recently, which itself triggers further acceleration of capital outflows and currency demand within Russia, hence further depreciation.
To sum up, export sanctions are effective to reduce purchasing power of the government a) when imports >0 and b) when imports=0 but households want to hold FOREX as a vehicle for savings. n/n
w/
@sguriev
we argue that European embargo on Russian oil and gas is the fastest way to end the war by stopping Putin’s ability to finance it. Any other policy option is more costly and dangerous. It is not just a humanitarian, but also an economic imperative for Europe. 1/n
2. Unlike in Post-Soviet states, transition in CE was associated with limited increase in inequality, and their growth was much more inclusive. Thus, outcomes for *median* incomes p/c are even more impressive than for GDP p/c. (in particular, compare e.g. Romania and Russia). 3/n
A comment I often hear: oil/gas embargo has little effect on Putin’s ability to continue the war. This is wrong.
In fact, the correct calculus: each marginal euro received from energy exports to Europe contributes exactly one euro to the war in Europe, as simple as that. 1/n
This transition has 2 important features:
1. All countries followed essentially parallel trends, despite different initial conditions. As a result, a few countries already reached GDP p.c. of the EU, and others are on a similar convergence trajectory just a few years behind. 2/n
Generally, we expect depreciation to improve trade balance and stabilize the currency market. But RU is already running a consistent trade surplus given high oil prices, despite partial sanctions.
€s are essential to support both the military needs, but also to compensate repressive and propaganda machines at home that are essential elements of Putin's military machine. None of this comes for free or could be sustained without hard currency from energy exports to Europe.
1/14 How an ordinary Russian TV viewer (one of whom I currently am) sees it.
I learned about the monstrous events in Bucha yesterday morning from the news that Russia was convening the UN Security Council in connection with the massacre by Ukrainian Nazis in Bucha.
@hmeyer78
@econ_hmg
the argument is different: perhaps the war can still be financed for months, but with current export revenues it can be financed for extra months on top of it - this is the relevant marginal calculation.
Export sector is unlikely to expand, though, under sanctions.
Notably, at current high oil prices, we would expect currency surplus in Ru and CBR buying currency reserves to offset appreciation.
Capital outflows more than offset this, and depreciation is likely to persist.
16 years ago I used Google searches (two left panels, in China and elsewhere) to illustrate what media freedom is. In 2022, one could search for the word "Bucha" in Google and Yandex (two right panels), the prime Russian search engine, to illustrate the same concept.
The overall conclusion: imposed sanctions worked the way they must have worked, no magic there. Not imposing export embargo early led to record high trade and fiscal surpluses that gave Putin's regime a huge financial cushion - enough to sustain many months of the war.
...they act cumulatively -- that is the total effect is additive.
2) The effect of sanctions on govt fiscal revenues in rubles is proportional to the share of export taxes in total fiscal revenues, and is not fully offset by depreciation (in response to export sanctions)... 2/n
@lugaricano
@sguriev
While this is plausible, Russia now is hardly a place where elections matter for govt decisions. I think a simplified view that the only relevant dimension of sanctions is its affect on the tightness of the government budget constraint (via worsening terms of trade) is justified.
@ben_moll
@BachmannRudi
not that it is important for the argument, but 2022 oil prices alone would have given +7% growth in Russia, so the actual economic decline from war is very dramatic (despite 2-digit trade surplus and govt spending⬆️), and sanctions didn’t start till Dec in earnest
... this is for the same reason why financial repression works to stabilize exchange rate. This allows the government to avoid redistribution via other means e.g. inflation or cutting spending. ... 4/n
Russian media are saying Macron spent 100 hours on the phone with Putin. They lie all the time, but I'd like to hear a denial from Elysée on this one. If true, Macron will get special places in both the history books and the Guinness Book.
Not often enough the emphasis is to contrast societies that run under checks and balances versus autocratic rule that descends into cults of personality of "strongem" that undermine democratic instutitions. This is still ubiquitos around the world. 3/n
Nonetheless, embargo and tighter price cap are better late than never, as each marginal euro of export revenues increases Putin's ability to finance the war and hence unnecessarily prolongs it:
A comment I often hear: oil/gas embargo has little effect on Putin’s ability to continue the war. This is wrong.
In fact, the correct calculus: each marginal euro received from energy exports to Europe contributes exactly one euro to the war in Europe, as simple as that. 1/n
... 3) additionally, sanctions reduce purchasing power of these rubles.
4) Importantly, even if imports = 0, FOREX export revenues allow to redistribute from households to government if households want to used FOREX for savings... 3/n
Suppose we did a helicopter drop of dollars in Red Square in Moscow. If no one bothers to pick them up, then export curbs are indeed irrelevant. Not a likely outcome of this experiment.
Suppose we did a helicopter drop of dollars in Red Square in Moscow. If no one bothers to pick them up, then export curbs are indeed irrelevant. Not a likely outcome of this experiment.👇
The model calibration is described in Section 5 here:
In the data, imports indeed recovered by the end of 2022, as we assumed, and the Jan-Feb data suggest a significant decline in export revenues, as EU sanctions on RU crude and products are kicking in.
China (CN) now accounts for nearly half of Russian imports (data below for March-Septebmer when trade with China has not yet fully increased). Turkey (TR) and India (IN) are growing fast too:
@kbburchardi
@LukaszRachel
@hmeyer78
@BachmannRudi
@sguriev
To clarify, it won’t be raising taxes it will be cutting transfers, and these transfers go to Putin’s core supporters. The right way to see it: Putin operates under extreme pressure from various constraints, some military, some political, some financial. Why make his life easier?
This is mostly meant as an illustration of the quantitative properties of the model. To be sure, our emphasis is largely on the qualitative economic forces that drive the complex dynamics of the ruble exchange rate since the start of the war.
All too often the focus of the discussion is on capitalism and markets versus socialism and communism. Here the score has been decisively settled, and most formerly communist countries have embrassed the market economy. 2/n
Ich stimme bekanntermassen mit
@hankrainer
nicht immer ueberein. Aber dieser Beitrag ist wirklich eine fulminante Zusammenfassung der wirtschaftspolitischen Diskussion von 2022.
Introducing… the winners of this year’s Sloan Research Fellowship! These extraordinary researchers represent some of the most exciting young minds working today—and we are thrilled to support them. Meet the winners here:
#SloanFellow
As oil embargo/price cap become more binding, the model predicts further depreciation in 2023 towards 85-90 ruble per $, abscent signficant FX interventions (which we show have only temporary effects) or inflationary resolution to fiscal deficit (which leads to extra devaluation)
On one hand, exchange rate is a conversion of units of two currencies, and if one knows the value of a unit of each currency, then perhaps the answer is yes.