Impact of short-term external shocks on the world and European economies

Abstract

This study models the response of the global and European economies to short-term external shocks, including changes in trade and import tariffs, as well as geo-economic and geopolitical factors. The analysis examines the stochastic relationship between external events and variations in key macroeconomic indicators, including global and European GDP, global and European trade volumes, and the Composite Purchasing Managers’ Index (PMI) across major sectors of the world economy. A regression framework incorporating a formalized binary variable is employed to capture the effects of changes in tariff and sanctions policies on economic performance. The empirical results indicate statistically significant effects of external shocks on individual macroeconomic indicators of the global and European economies, as well as on an aggregated index constructed from these indicators. The findings reveal differences in the responses of the examined economies to external shocks, enabling a comparative assessment of their stability and resilience. The results suggest that the European economy demonstrates a higher degree of resistance to external shocks compared to the global economy as a whole and to the Chinese economy.