Unravelling the Spillover Effects of Uncertainty and Russian Financial Stress Index During Russia-Ukraine Conflict

Abstract

Being geopolitically exposed Russian financial sector is vulnerable to uncertainty indices. We have employed Corss-Quantilogram, Recursive Corss-Quantilogram and dynamic connectedness based on TVP-VAR to discover the quantile movements and dynamic spillovers of uncertainty indices with financial stress index of Russia using monthly data from June 2011 to August 2023. It is found that for tweeter based economic uncertainty (TEU) and global economic policy uncertainty (GEPU), there is strong positive dependence on the Russian financial stress index (RFSI) at the bearish states of market in the initial memory and the strength of this positive spillovers effect is gradually dampens towards longer memory structures. Unlike the GEPU, Russian economic policy uncertainty (REPU) has long lasting heterogeneous spillover effects on RFSI. Though there is significant positive as well as negative spillover effects of global geopolitical risks (GGPR) on RFSI in the initial memory, across the longer memory structures these entire heterogeneous effects washout. However, Russian geopolitical risks (RGPR) has long lasting heterogeneous spillover effects on RFSI unlike GGPR. GEPU, GGPR and RGPR were the net transmitter while RFSI, TEU and REPU were net receiver of volatility shocks. Our study come up with important policy implications for investors.

Keywords: Tweeter based economic uncertainty, economic policy uncertainty, geopolitical risks, financial stress index, Russia