Macroeconomic Expectations in a War

Using a short- and long-term macroeconomic forecasts, we estimate the cost of the Russian full-scale invasion of Ukraine for countries in Eastern Europe, Caucasus, and Central Asia. Shortly after the Russian attack, the projected cost (cumulative over six years) stood at $2.44 trillion for the region. Professional forecasters predicted a dramatic increase in macroeconomic uncertainty, significant spillover effects, some hysteresis effects as well as a changing nature of business cycles. We also use the war shock to study how professional forecasters acquire and process information. Our results point to state dependence as well as an important role of forward information in shaping macroeconomic outlook of professional forecasters.