Assessing the Macroeconomic Impact of Brexit through Trade and Migration Channels

38 Pages Posted: 24 Jan 2020

See all articles by Antoine Berthou

Antoine Berthou

Banque de France

Sophie Haincourt

Banque de France

Marie-Elisabeth de la Serve

Banque de France

Ángel Estrada

Banco de España

Moritz A. Roth

Banco de España

Alexander Kadow

Deutsche Bundesbank

Date Written: January 22, 2020

Abstract

This joint work by the Bundesbank, the Banque de France and the Banco de España highlights some of the numerous channels through which Brexit will affect the UK economy and its economic partners. In particular, it focuses on trade and migration channels, adding a more general assessment of exiting the EU through the use of a gravity model. The trade channel alone may cut UK GDP by 2% over the medium term if the UK reverts to WTO rules, while a more general gravity model would point to UK GDP falling by almost 6% compared to baseline. According to our analysis, the ‘cost of non-Europe’ (such as originally stated by Cecchini’s seminal work in 1988) lies therefore between 2% and 6% in terms of real GDP losses for the UK. With the shock being largely asymmetric, the EA remains relatively unscathed by the UK’s exit, with GDP less than 1% lower than baseline by 2023. The study also shows that results are sensitive to the envisaged policy response. In general, monetary and fiscal policies may act to cushion a Brexit-related shock; however, the potency of the policy response depends on the underlying source of the shock.

Keywords: Brexit, NiGEM, trade, tariffs, non-tariff trade barriers, migration, scenario analysis

JEL Classification: F15, F42, F53

Suggested Citation

Berthou, Antoine and Haincourt, Sophie and de la Serve, Marie-Elisabeth and Estrada, Ángel and Roth, Moritz A. and Kadow, Alexander, Assessing the Macroeconomic Impact of Brexit through Trade and Migration Channels (January 22, 2020). Banco de Espana Ocassional Paper No. 1911, Available at SSRN: https://ssrn.com/abstract=3523738 or http://dx.doi.org/10.2139/ssrn.3523738

Antoine Berthou

Banque de France ( email )

Paris
France

Sophie Haincourt

Banque de France

Paris
France

Marie-Elisabeth De la Serve

Banque de France ( email )

Paris
France

Ángel Estrada

Banco de España ( email )

Alcala 50
Madrid 28014
Spain

HOME PAGE: http://www.bde.es/

Moritz A. Roth (Contact Author)

Banco de España ( email )

Alcala 50
Madrid 28014
Spain

Alexander Kadow

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

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