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Modeling the effects of Brexit on the British economy

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  • Patrick Minford
  • Zheyi Zhu

Abstract

We estimate the short run effects of Brexit border disruption on the UK economy. We estimate a structural VAR for the UK, where Brexit effects are identified by the dates of Brexit events, the referendum, and the exit from the single market. We find evidence of short run effects of Brexit: temporary effects on GDP, exports and imports (slightly negative), and on inflation and interest rates (slightly positive). These effects are consistent with modest disruption from introducing a border with the EU—a border due to be made barrier‐free and seamless by the UK‐EU Trade and Cooperation Agreement. Previous work using other countries as comparators is vulnerable to identification difficulties. We also survey earlier modeling work on the long run effects of evolving policies of free trade, UK‐sourced regulation, and liberalized immigration. Models of long run trade suggest the emergence of substantial gains.

Suggested Citation

  • Patrick Minford & Zheyi Zhu, 2024. "Modeling the effects of Brexit on the British economy," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 43(4), pages 1114-1126, July.
    • Handle: RePEc:wly:jforec:v:43:y:2024:i:4:p:1114-1126
    DOI: 10.1002/for.3076
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    References listed on IDEAS

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    1. Patrick Minford & Yongdeng Xu, 2018. "Classical or Gravity? Which Trade Model Best Matches the UK Facts?," Open Economies Review, Springer, vol. 29(3), pages 579-611, July.
    2. Gang Chen & Xue Dong & Patrick Minford & Guanhua Qiu & Yongdeng Xu & Zequn Xu, 2022. "Computable General Equilibrium Models of Trade in the Modern Trade Policy Debate," Open Economies Review, Springer, vol. 33(2), pages 271-309, April.
    3. Frank Smets & Rafael Wouters, 2007. "Shocks and Frictions in US Business Cycles: A Bayesian DSGE Approach," American Economic Review, American Economic Association, vol. 97(3), pages 586-606, June.
    4. Le, Vo Phuong Mai & Meenagh, David & Minford, Patrick & Wickens, Michael, 2011. "How much nominal rigidity is there in the US economy? Testing a new Keynesian DSGE model using indirect inference," Journal of Economic Dynamics and Control, Elsevier, vol. 35(12), pages 2078-2104.
    5. Vo Le & David Meenagh & Patrick Minford & Michael Wickens & Yongdeng Xu, 2016. "Testing Macro Models by Indirect Inference: A Survey for Users," Open Economies Review, Springer, vol. 27(1), pages 1-38, February.
    6. Ashton, Paul & MacKinnon, Neil & Minford, Patrick, 2016. "The economics of unskilled immigration," Cardiff Economics Working Papers E2016/15, Cardiff University, Cardiff Business School, Economics Section.
    Full references (including those not matched with items on IDEAS)

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