Sanctions Effects on Russia: A Possible Sanction Transmission Mechanism?

This study examines the effects of sanctions implemented by the European Union and the United States of America against the Russian Federation following the latter’s annexation of the Crimea Peninsula and invasion of Eastern Ukraine. The analysis focuses on indirect or spillover effects caused by EU and US sanctions on several macroeconomic variables of the Russian economy. Employing a structural vector autoregressive model, the study uses time-varying sanction indices to simulate sanctions, substituting for binary dummy variables traditionally employed in modelling sanction’s implementation. The findings reveal that sanctions have an indirect impact on Russia’s GDP through their direct effects on inflation, interest rate, and domestic currency – a notion introduced as “sanction transmission mechanism”.