What will Brexit mean for the British and euro-area economies? A model-based assessment of trade regimes

Massimiliano Pisani and Filippo Vergara Caffarelli

No 1163, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: This paper evaluates the macroeconomic effects on the UK and the euro area of an increase in trade tariffs associated with Brexit, by simulating a dynamic general equilibrium model of the UK, the euro area, and the rest of the world (RW). Our results are as follows: first, the imposition of tariffs reduces UK exports and economic activity by a non-negligible amount; second, the macroeconomic costs for the UK are reduced if it decides unilaterally not to increase tariffs on imports from the euro area and to reduce those on imports from the RW; third, the macroeconomic costs are particularly high if the lower UK trade openness resulting from the imposition of tariffs reduces the UK’s total factor productivity; and fourth, Brexit has negative, but quite limited, effects on euro-area economic activity.

Keywords: Brexit; DSGE models; tariffs (search for similar items in EconPapers)
JEL-codes: C54 F13 F15 (search for similar items in EconPapers)
Date: 2018-01
New Economics Papers: this item is included in nep-eec, nep-int and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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Persistent link: https://EconPapers.repec.org/RePEc:bdi:wptemi:td_1163_18

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