THE BERKELEY ECONOMIC REVIEW
1 Introduction Since the first naval blockades interrupted commercial trade, economic sanctions have remained a staple policy tool of international politics. While the goal of encouraging change in policy remains the same, the methods are more nuanced and sophisticated. Nations routinely use sanctions to address objectionable actions and practices by foreign states, entities, or persons (Davis, 2003, p. 190). Sanctions now come in many forms. The most focused sanctions target individuals. Others are broad in their reach and target entire industries. Some chisel away at the income of a targeted nation by attacking its exports. Others restrict imports to limit access to goods and technologies (Davis, 2003, p. 190). More recently, sanctions have targeted “international financial flows” to restrict access to capital and reduce financial foreign aid (Davis, 2003, p. 191). This paper uses vector autoregressive techniques to quantify the economic impact of recent Western sanctions on Russia’s ruble and its economy. The two and a half decades following the collapse of the Soviet Union have been tumultuous for Russia. Several recessions have plagued the economy of the once-super power as it struggled to adjust to a new world order. The countries that once made up the Eastern Bloc have also been adjusting to an existence independent of the USSR. Some of these nations embraced their Western neighbors, while others sustained their tight bond with Mother Russia. With sporadic inclusion efforts coming from the West and nearly all of its energy and trade flows coming from Russia, Ukraine is stuck between the two. Today, Ukraine is deeply divided. The remnants of the Soviet system have festered. Public outrage over corruption and insufficient economic reform fueled the 2014 Euromaidan movement against Ukraine’s pro-Russian president. When Ukraine established a Western-leaning government, Russia cut off financial assistance and gas exports to Ukraine and then quickly annexed the resource-rich Crimean Peninsula (Dreger et al., 2016, p. 297). In a display of international objection to the annexation of Crimea, the European Union and United States levied the first sanctions against Russia in March 2014. Australia, Canada, and Japan quickly followed suit. Albania, Montenegro, Iceland, and Norway levied sanctions in early April as the EU and US imposed even more sanctions (see Table 11 in the Appendix for a description of each of these sanctions). As the conflict developed, efforts for peace were threatened, the level of Russian involvement became more apparent, and more waves of sanctions were imposed. Most sanctions banned particular Russians and Crimeans from traveling, while others froze internationally-held assets. Later on, sanctions targeted entire sectors, prohibiting the import and export of certain goods and technologies. In response, Russia banned food imports from Western countries that had imposed these sanctions (see Table 10 in the Appendix for a description of these retaliatory sanctions). So far, Western sanctions have not triggered any policy change. Russia still occupies the Crimean Peninsula and supports
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