Perceived economic effects of the war in Ukraine: survey-based evidence from Italian firms

ABSTRACT

Using data from an Italian business survey and a quasi-experimental analysis, we document the effects of the Russian invasion of Ukraine on firms’ expectations. The conflict led firms to revise upward their inflation expectations and their own expected prices changes and made them more pessimistic about the general macroeconomic outlook and their business conditions. These effects did not materialize immediately after the Russian invasion but built up in the second and third weeks thereafter.

KEYWORDS:

• Inflation expectations
• business confidence
• 2022 Russian invasion of Ukraine
• survey data

JEL CLASSIFICATION:

• E02
• E03
• D74

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

¹ Though rumours on a possible invasion circulated since the beginning of 2022, this event appeared ex-ante highly improbable.

² T₁ covers the period from 24 February to 3 March; T₂ from 4 to 10 March; and $T_3$ from 11 to 17 March. Throughout, we refer to these periods as first, second and third weeks, respectively.

³ For the sake of brevity these results are not included but are available upon request.

⁴ In square brackets, we report how we numerically recode the qualitative answers.

⁵ In none of the specifications the estimated coefficient on the change of oil prices ($\gamma$) is statistically significant. This evidence should not be interpreted as oil not having an effect on firms’ beliefs, but possibly suggesting that as the price of oil reached extremely high levels in these days it did not yield any systematic difference on treated and untreated firms’ expectations.

⁶ Combining the qualitative answers for the direction and intensity allows us to apply a seven-point scale to each factor (from −3 for a factor having a strong negative effect on prices to + 3 for a factor having a strong positive effect on prices).