Exchange Rates and Consumer Prices: Evidence from Brexit

Trade and Inequality in Europe and the Us

“…47 Given the above observation that the expenditure shares on goods or imported goods do not vary greatly across income groups within the UK or the US, one might expect that changes in goods prices do not create substantial inflation inequality, unless a price changefor instance due to tariffsdifferentially affects goods whose expenditure shares vary strongly across income groups. Breinlich et al (2019) indeed estimate that the sudden depreciation of the British pound following the 2016 Brexit vote increased prices for consumers in the UK by an average of 2.9%, but had no differential impact on households of different income levels.…”

“…A further approach to identify causal impacts of trade relies on large and persistent changes in exchange rates, such as the devaluation of the British pound following the Brexit referendum (e.g. Breinlich et al, 2019;Costa, Dhingra and Machin, 2019) or the appreciation of the Swiss franc following the removal of its peg to the euro in 2015 (Kaufmann and Renkin, 2017;Auer, Burstein and Lein, 2021).…”

“…However, the price effects of an import shock could still vary across regions if there is variation in regional consumption bundles. Breinlich et al (2019) provide some evidence for such spatial effects in their analysis of changes in UK consumer prices following the sterling depreciation of 2016. They estimate that the resulting increase in inflation was 0.7 percentage points lower in the London area, where housing costs account for a relatively large share of overall expenditure, than in Northern Ireland, where consumers spend a relatively high proportion of their income on such goods as food, clothing and fuel.…”

“…Coefficient estimates for the impact of import competition are more negative for the prices of goods consumed more by the rich when using the regression models in columns 1 and 2 of Table 1, while the converse holds for the models in columns 3, 4, 5 and 6. 47 See, for example, Breinlich et al (2019) on the depreciation of the British pound following the Brexit referendum, Auer, Burstein and Lein (2021) on the 2015 appreciation of the Swiss franc following the end of its peg to the euro, and Amiti, Redding and Weinstein (2019) and Fajgelbaum et al (2020) on the import tariffs introduced by the US in 2018.…”

The Effect of Brexit on British Workers Living in the EU

“…The wide range of estimates is due to the diversity of methodologies, scenarios and channels that were considered. These studies examined the effect of Brexit on UK's gross domestic product (Born et al, 2019a), inflation and real wages (Breinlich et al, 2020), exchange rate and consumer prices (Breinlich et al, 2018(Breinlich et al, , 2019, firms investments and productivity (Bloom et al, 2019), trade (Crowley et al, 2018;Graziano et al, 2021Graziano et al, , 2020Ahmad et al, 2020), migration (Booth et al, 2015;Portes and Forte, 2017;Jafari and Britz, 2017), medium-sized enterprises (SMEs) (Brown et al, 2019), loan issuances (Berg et al, 2021), and financial markets (Breinlich et al, 2018).…”