Brexit¡¯s Protectionist Policy and Implications for the British Pound

Lara Joy Dixon and Hoje Jo

International Journal of Financial Research, 2017, vol. 8, issue 4, 7-22

Abstract: In this paper, we examine the association among the macroeconomic variables - interest rate, inflation rate, unemployment, and the expected spot rate of the British pound with respect to the Euro around the announcement of ¡°Brexit¡±, June 2016, using the two international parity relationships, Purchase Power Parity (PPP) and International Fisher effect (IFE). We use the two international parity relationships to examine the significance of change in daily interest rates and monthly inflation rates on the change in actual daily spot rates. In addition, we postulate that the protectionist nature of Brexit policy has contributed to lowering U.K. unemployment and prompted wage growth, resulting in higher inflation rates. Our analysis, examining both the magnitude and directional deviation of the actual spot rate compared to the spot rate using the two parity relations, indicate that spot rates predicted based on the PPP and the IFE relations suggest the weakening of the British pound after the Brexit announcement. Furthermore, we find that U.K. unemployment has reduced due to the expanded monetary policy, consistent with the prediction of the Phillip¡¯s curve.

Keywords: brexit announcement; international fisher effect; purchasing power parity; unemployment; inflation rate (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.sciedu.ca/journal/index.php/ijfr/article/view/12227/7496 (application/pdf)
http://www.sciedu.ca/journal/index.php/ijfr/article/view/12227 (text/html)

Related works:
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:jfr:ijfr11:v:8:y:2017:i:4:p:7-22

DOI: 10.5430/ijfr.v8n4p7

Access Statistics for this article

International Journal of Financial Research is currently edited by Gina Perry

More articles in International Journal of Financial Research from International Journal of Financial Research, Sciedu Press
Bibliographic data for series maintained by Gina Perry ().