Riste Ichev | Searcharxiv

arXiv2026

Pricing Catastrophe: How Extreme Political Shocks Reprice Sovereign Risk, Beliefs, and Growth Expectations

Extreme political shocks may reshape economies not only through contemporaneous disruption but by altering beliefs about the distribution of future states. We study how such belief ruptures affect the cost of capital, expectations, and macroeconomic dynamics, using the October 7, 2023 attack on Israel as a precisely timed shock. Leveraging monthly data from 2008 to 2025 and a donor pool of advanced economies, we estimate counterfactual paths using a matrix completion design with rolling-window cross-validation and placebo-based inference, corroborated by synthetic difference-in-differences. We document three core findings. First, long-horizon sovereign risk of Israel is persistently repriced. Ten-year yields and spreads relative to the United States rise sharply and remain elevated. Second, household welfare beliefs deteriorate durably, as reflected in consumer confidence. Third, medium-run momentum improves, captured by a strong rise in the OECD composite leading indicator. These patterns reveal risk-growth decoupling where tail-risk premia rise even as medium-horizon activity expectations strengthen. Our results highlight belief-driven channels as a central mechanism through which extreme ruptures shape macro-financial outcomes.

econ.GN↗

arXiv2025

From Revolution to Ruin: An Empirical Analysis Yemen's State Collapse

We assess the broad repercussions of Yemen's 2011 revolution and subsequent civil war on its macroeconomic trajectories, human development, and quality of governance by constructing counterfactual benchmarks using a balanced panel of 37 developing countries over 1990-2022. Drawing on matrix-completion estimators with alternative shrinkage regimes and a LASSO-augmented synthetic-control method, we generate Yemen's hypothetical no-conflict paths for key macroeconomic aggregates, demographic and health indicators, and governance metrics. Across the full spectrum of methods, the conflict's outbreak corresponds with a dramatic reversal of economic and institutional development. We find that output and income experience an unprecedented contraction, investment and trade openness deteriorate sharply, and gains in life expectancy and human development are broadly reversed. Simultaneously, measures of political accountability, administrative capacity, rule of law, and corruption control collapse, reflecting systemic institutional breakdown. The concordance of results across a variety of empirical strategies attests to the robustness of our estimates.

econ.GN↗