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

Rui Vieira Marques Da Costa, Swati Dhingra and Stephen Machin

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: This paper studies consequences of the large exchange rate depreciation occurring when the UK electorate unexpectedly voted to leave the European Union. Sterling plummeted, recording the biggest one-day depreciation of any of the world's four major currencies since Bretton Woods. The prospect of Brexit 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 rates facing businesses in different industries. The paper offers evidence of a cost shock from the prices of intermediate imports rising by more in higher depreciation industries, but with no revenue offset from exports. Workers were impacted by these increased cost pressures, not in terms of job loss but through relative real wage declines in higher depreciation, larger cost shock industries. This resulted in an aggregate fall in real wage growth of 3 to 3.6% cumulatively over the three years after the referendum.

Keywords: Brexit; exchange rate depreciation; trade prices; labour outcomes (search for similar items in EconPapers)
JEL-codes: J40 J68 L52 P25 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2024-11-30
New Economics Papers: this item is included in nep-eur, nep-int and nep-opm
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Published in Journal of International Economics, 30, November, 2024, 152. ISSN: 0022-1996

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http://eprints.lse.ac.uk/124542/ Open access version. (application/pdf)

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 (2022)
Working Paper: New dawn fades: trade, labour and the Brexit exchange rate depreciation (2022)
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