- The Russia-Ukraine Conflict and Eurozone Sovereign Risk: A Yield Net Analysis
- Zhiwu Hong, Linlin Niu
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- 2614 20260128 () Views:40
- This paper examines how the Russia-Ukraine geopolitical risk (GPR) transmits to Eurozone sovereign bond yields using an affine macro-finance yield net model. We find GPR shocks raise inflation expectations immediately with significance and persistence, subsequently lifting sovereign yields most sharply at the medium term, explaining about 30% of yield variation at a five-year horizon. Surprisingly, transmission is strongest in fiscally robust members, not high-debt countries. This pattern aligns with national commitments to Ukraine, revealing that direct fiscal engagements---enabled by their fiscal space---drive risk pricing, underscoring the monetary-fiscal trade-offs facing policymakers under geopolitical stress.
- JEL-Codes: C32; E31; E43; F51; G15
- Keywords: Geopolitical risk; Eurozone; Sovereign risk premia; Fiscal exposure; Affine term structure models
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