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The Russia-Ukraine Conflict and Eurozone Sovereign Risk: A Yield Net Analysis

Author

Listed:
  • Zhiwu Hong

    (China University of Political Science and Law)

  • Linlin Niu

    (Xiamen University)

Abstract

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.

Suggested Citation

  • Zhiwu Hong & Linlin Niu, 2026. "The Russia-Ukraine Conflict and Eurozone Sovereign Risk: A Yield Net Analysis," Working Papers 2026-01-28, Wang Yanan Institute for Studies in Economics (WISE), Xiamen University.
    • Handle: RePEc:wyi:wpaper:002614
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    File URL: https://econpub.xmu.edu.cn/research/repec/upload/202602011510483151.pdf
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    Keywords

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    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • F51 - International Economics - - International Relations, National Security, and International Political Economy - - - International Conflicts; Negotiations; Sanctions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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