New dawn fades: Trade, labour and the Brexit exchange rate depreciation

Rui Costa, Swati Dhingra and Stephen Machin

CEP Discussion Papers from Centre for Economic Performance, LSE

Abstract: This paper studies consequences of the very large exchange rate depreciation occurring in June 2016 due to the UK electorate unexpectedly voting to leave the European Union. As news of a leave vote came in, the value of sterling plummeted, recording the biggest one day depreciation of any of the world's four major currencies since the collapse of Bretton Woods. The prospect of Brexit really happening generated sizable differences in how much sterling depreciated against different currencies. Coupled with pre-referendum cross-country trade patterns, this generated variations in exchange rate depreciations facing businesses in different industries. The paper first considers revenue and cost channels operating through trade price responses, offering evidence of a cost shock from the price of intermediate imports rising by more in higher depreciation industries, but with no revenue offset from exports. Workers were impacted by the increased cost pressures facing businesses, not in terms of job loss but through relative real wage declines and stagnation for workers employed in industries facing larger depreciations.

Keywords: Brexit; exchange rate depreciation; trade prices; labour outcomes (search for similar items in EconPapers)
Date: 2022-12-07
New Economics Papers: this item is included in nep-int
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Citations: View citations in EconPapers (2)

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Related works:
Journal Article: New dawn fades: Trade, labour and the Brexit exchange rate depreciation (2024)
Working Paper: New dawn fades: trade, labour and the Brexit exchange rate depreciation (2024)
Working Paper: New dawn fades: trade, labour and the Brexit exchange rate depreciation (2022)
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