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This study aims to thoroughly investigate the complexity of inflation dynamics in the context of two significant global crises, the COVID-19 pandemic and the ongoing geopolitical tensions in Ukraine. The primary goal is to examine the effects of several factors, such as interest rates, currency indices and unemployment, on inflation during extended periods of noneconomic crises.

This research uses a comprehensive data set spanning 75 months across the USA and the Euro Area, using the Generalized Method of Moments two-step regression methodology for analysis. The study examines the relationships between interest rates, currency indices, unemployment and inflation during extended noneconomic (financial) crises. This rigorous approach offers a nuanced understanding of how these factors interact and influence inflation.

The study highlights the crucial role of interest rates in controlling inflation during crises. Specifically, an interest rate increase of over 1.75% negatively impacts inflation, with more substantial rate hikes having a faster effect. The analysis reveals a minimal correlation between currency devaluation and inflation, emphasizing the predominant influence of interest rates. In addition, a notable negative correlation between unemployment and inflation is observed, indicating that higher unemployment rates tend to coincide with lower inflation levels.

The study’s findings offer valuable insights for central banks and policymakers tasked with managing inflation in times of crisis. By underscoring the effectiveness of interest rate adjustments and the limited influence of currency depreciation, this research provides critical guidance for formulating effective monetary policy during economic challenges.

This study contributes to existing literature by providing a comprehensive analysis of inflation dynamics during noneconomic crises, using a robust database and using advanced econometric techniques. The findings provide new insights into the role of interest rates, currency indices and unemployment in shaping inflation dynamics in times of noneconomic crises. These findings enhance the understanding of monetary policy strategies in challenging economic environments.

The stability of exchange rates facilitates international trade, diminishes portfolio risk, and ensures that economic policies are effective. The war in Ukraine is showing that the European financial system is still fragile to external shocks. This paper examines the consequences of the Russian invasion of Ukraine on five Euro exchange rates. The final goal is to empirically test whether the ruble caused the euro to depreciate with the Russian invasion of Ukraine.

The exchange rates analyzed are Euro/Russian Ruble, Euro/US Dollar, Euro/Japanese Yen, Euro/British Pound, and Euro/Chinese Yuan. The data collected are daily and cover the period from November 1, 2021, to May 1, 2022. In this context, the changes in the FX rates reflect two months of the ongoing war in Ukraine. The FX rates used in the study contain 137 observations indicating five months of daily series.

The results from impulse response function, variance decomposition, SVAR, and VECM indicate that the EUR/RUB significantly influenced the Euro devaluation. On the other side, the FX rates used in our work altogether hold long-run cointegration. The situation is different in the short run, where only EUR/RUB, EUR/USD, and EUR/CNY possess significant relations with other parities.

The Ruble is not among hard currencies, but its position strengthened during this period due to the importance of Russian gas to the Eurozone. The results indicate that even weak currencies can be influential depending on the geopolitical and economic situation. To this end, diversification remains a valid concept not only in portfolio construction but also for the preservation of the national economy.