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How Do Exchange Rate Depreciations Affect Trade and Prices? A Survey and Lessons about UK Experience after June 2016

Yohannes Ayele () and L. Winters
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Yohannes Ayele: Department of Economics, University of Sussex

Working Paper Series from Department of Economics, University of Sussex Business School

Abstract: The sterling depreciation following the Brexit referendum was expected to boost the export sector of the UK economy. But the boom never arrived. This paper first reviews a selection of empirical research on the effects of exchange rate changes on import prices, consumer prices, export prices and trade quantities over the recent decades and then specifically discusses the effects of the recent sterling depreciation. It asks specifically whether the absence of an export boom should be considered a surprise or not. We find that the weakness of the export boom after the sterling depreciation was not wildly out of line with what the literature suggests. But we also argue, however, that the poor performance was also at least partly due to the huge increase in uncertainty about UK trade policy that accompanied the depreciation.

Date: 2020-08
New Economics Papers: this item is included in nep-int and nep-isf
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