Dissecting the drivers of the Russian financial stress during the Ukrainian conflict: evidence from the ML variable selection

The article aims to dissect the drivers of the Russian financial stress during the Ukrainian conflict. Building on two stress indices and an extensive set of potential drivers, we adopt ML variable selection techniques and predictive regressions to identify the most significant variables driving the Russian financial stress between January 2022 and March 2025. Attention to sanctions and the variables related to the global financial cycle appear the most salient predictors. A rise in the attention to sanctions exacerbates the Russian financial stress. It is also likely to bear the contents of other sentiment measures, such as geopolitical risk and economic policy uncertainty for Russia. The proxies of the global financial cycle, i.e. increasing US Federal funds rate and the tracker accounting for the global monetary policy stance, mitigate the Russian financial stress. Overall, our analysis suggests that Russia still retains the features of a small open economy.