Brexit and the Macroeconomic Impact of Trade Policy Uncertainty

The United Kingdom has voted to leave the European Union but the trade policies that will replace E.U. membership are uncertain, and speculation abounds that this uncertainty will harm the U.K. economy until it is resolved. To assess the impact of uncertainty about post-Brexit trade policies, I study a dynamic general equilibrium model with endogenous export participation and uncertainty about whether future U.K.-E.U. trade costs will be high or low. I find that the total welfare cost of Brexit for U.K. households is between £7,000 and £18,000 per person, while uncertainty about Brexit costs less than £45 per person.