Gernot Müller

Thematic seminars
Macro and labor market seminar

Gernot Müller

University of Tübingen
The Gravity of War
Venue

IBD Salle 17

Îlot Bernard du Bois - Salle 17

AMU - AMSE
5-9 boulevard Maurice Bourdet
13001 Marseille

Date(s)
Thursday, May 4 2023| 12:00pm to 1:00pm
Contact(s)

Andreas Dibiasi: andreas.dibiasi[at]univ-amu.fr
Céline Poilly: celine.poilly[at]univ-amu.fr

Abstract

Recent events underscore the need to better understand the macroeconomic consequences of war, not only for the countries directly involved in military conflict but also its international spillovers. This paper studies the economic consequences of 76 interstate wars since 1870. We show that wars constitute large negative supply shocks for war-site economies: major wars raise inflation levels by some 15-20 percentage points for several years and lower economic activity by more than 30 percent relative to trend. The spillovers to third countries that are not party to the war but geographically close are also substantial and operate through trade gravity channels. Major wars raise inflation in neighboring countries by almost 10 percentage points and depress economic activity more than 10 percent relative to trend. We calibrate an international business cycle model to capture key features of the data and study how monetary policy responses affect the spillovers of war.