Russian and Ukrainian equity markets have sold off in reaction to mounting tensions on their border. Comparisons with previous shocks — the COVID-19 pandemic, the annexation of Crimea, and the Global Financial Crisis — suggest there is ample room for further declines should the situation deteriorate further. However, the ramifications from a full-blown Ukrainian crisis could spread far beyond eastern Europe should it lead to tit-for-tat punitive measures between the EU and Russia. This provides a potential source of upside risk to euro area inflation…

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