Working Paper: NBER ID: w31600
Authors: Alejandro G. Graziano; Kyle Handley; Nuno Lima
Abstract: We estimate the impact of trade policy uncertainty (TPU) on CES import price indices, focusing on the implications of Britain’s exit from the European Union (Brexit). Our analysis reveals that an increase in the probability of Brexit increases U.K. import price indices by raising the prices of existing products and by reducing product variety from the E.U. We find evidence that the risk of higher import protection from the 2016 referendum increased current import price indices by more than 10%. This amounted to a 2 log point increase in manufactured goods prices and a 0.6 log point decrease in consumers’ real income.
Keywords: Brexit; Trade Policy Uncertainty; Import Prices; Consumer Welfare
JEL Codes: D8; E02; F02; F13; F14; F15
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Increase in the probability of Brexit (F69) | Higher UK import price indices (C43) |
| One standard deviation increase in Brexit uncertainty (F69) | 1.7 log point increase in annual prices (E30) |
| Full referendum shock (D72) | 11 log point increase in UK import prices from EU trade partners (F14) |
| Higher UK import price indices (C43) | Increased prices of existing products (D49) |
| Higher UK import price indices (C43) | Reduced product variety from the EU (L15) |