BREXIT Perspectives: Financial Market Dynamics, Welfare Aspects and Problems from Slower Growth

Paul Welfens and Tian Xiong ()
Additional contact information
Tian Xiong: Europäisches Institut für Internationale Wirtschaftsbeziehungen (EIIW)

No disbei249, EIIW Discussion paper from Universitätsbibliothek Wuppertal, University Library

Abstract: In this analysis, BREXIT is considered with regard to the main consequences for financial markets; and real economic implications are taken into account while policy options are also highlighted. The role of the interest elasticity of the demand for money is emphasized for both welfare analysis of BREXIT and overshooting - assuming that that elasticity will fall post-BREXIT. Key insights emerge from aspects related to Dornbusch-type exchange rate overshooting problems and insights from the Branson model: This medium-term perspective is used to derive some short-term and long-term BREXIT implications. As regards overall welfare effects, the BREXIT welfare effect related to a lower holding of real money balances - due to a lower gross domestic product post-BREXIT in the long run - is rather high, so that adding this to the HM Treasury finding of a 10% income loss from BREXIT suggests that the long run welfare loss of the UK could be high. Moreover, the quality of financial market integration in the EU countries is highlighted: For the first time, financial services trade restrictiveness indices are empirically analyzed. This leads - on the basis of a restrictiveness index regarding international financial services and additional information about prudential supervision quality - to an assessment of the quality of financial markets. Policy conclusions take into account the new protectionist challenges and use insights from the Welfens enhanced growth model with trade and foreign direct investment.

Keywords: BREXIT; financial markets; macroeconomic policy; political economy; welfare analysis; capital flows (search for similar items in EconPapers)
JEL-codes: D53 D6 E6 E66 F21 F5 (search for similar items in EconPapers)
Pages: 66 Pages
Date: 2018-09
New Economics Papers: this item is included in nep-int and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://eiiw.wiwi.uni-wuppertal.de/fileadmin/eiiw/ ... _Reihe/disbei249.pdf (application/pdf)

Related works:
Journal Article: BREXIT perspectives: financial market dynamics, welfare aspects and problems from slower growth (2019)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bwu:eiiwdp:disbei249

Access Statistics for this paper

More papers in EIIW Discussion paper from Universitätsbibliothek Wuppertal, University Library
Bibliographic data for series maintained by Frank Hoffmann ().