News Uncertainty in Brexit United Kingdom

Renato Faccini and Edoardo Palombo

American Economic Review: Insights, 2021, vol. 3, issue 2, 149-64

Abstract: After the Brexit referendum, the behavior of the UK economy defied widespread expectations, as it did not exhibit a V-shaped recession but a slow decline in production. We show that this pattern of propagation arises when uncertainty is about future, rather than current, fundamentals and if the expected duration of uncertainty is sufficiently long. We reach this conclusion within the confines of a heterogeneous firms model featuring news uncertainty rather than conventional uncertainty shocks. In the quantitative analysis, uncertainty is informed by firm-level probability distributions on the expected effect of Brexit on sales.

JEL-codes: E22 E23 E24 E32 F15 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (4)

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DOI: 10.1257/aeri.20200019

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