War, sanctions, peace?

Against the background of recent IMF forecasts that seem to imply that the Russian Economy has not been hit as hard as was expected by international institutions and academic modelling teams, this working paper provides context, showing the need to take the proper counterfactual into account. The paper discusses statistical problems (including the war paradox of National Accounts and the secrecy that both bias official data). Focusing on the success and failure rates of sanctions, the paper clarifies the need to distinguish economic impact and political success and argues that potential success and failure rates need to be compared to other available international policy tools. The paper discusses an alternative modelling approach for the mainstream economic forecasts. A family of VAR models takes both dynamic interactions between economic and political variables into account and enables a direct focus on two variables of interest: military expenditures and impact on the Chief Executive. A key finding is that economic sanctions influence both variables in the desired direction and thereby help to create a window of opportunity that, however, is closing after three to four years.