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Faculty of Economics

The impact of trade policy and exchange rate shocks on trade

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Title: The impact of trade policy and exchange rate shocks on trade

Sponsor: ESRC

Description: How will Brexit affect the development and growth of British manufacturing firms? Britain's popular referendum vote to exit from the European Union has created a great deal of uncertainty about the future of Britain's external trade relations with countries that belong to the European Union as well as with other major trading economies external to the EU, including the United States and China. With the government preparing for exit negotiations, little is known about the future external trade policy the UK government intends to establish with regard to European Union states as well as with non-EU countries. Two major and interrelated sources of uncertainty are (a) the future value of the pound sterling relative to the currencies of Britain's trading partners and (b) the future trade policy on imports into the UK as well as the future trade policy Britain's exports will face in the EU.

In this research project, we are conducting:

1. legal research on Britain's rights and obligations under the WTO and numerous bilateral investment treaties in order to focus the economic analysis of policy options (import tariffs, production subsidies) to those that the British government can legally use under international law;

2. economic research focused on trade policies, trade flows and trade impacts in order to predict the impact of Brexit and any proposed future trade agreements on British manufacturers that use imported inputs in their production, British firms that compete with imports in the UK market, on British exporters to EU and non-EU destinations and on workers and consumers in the UK; and

3. economic research on exchange rate pass through (ERPT) in order to forecast how changes in the value of the pound sterling will pass through into British import and export prices.

The UK in a Changing Europe website:

Principal investigator

Dr Meredith Crowley


Dr Lorand Bartels

Post-doc research associate

Lu Han

PhD student

Oliver Exton

External member

Dr Huasheng Song

Published Papers

Crowley, M.A., Meng, N. and Song, H. Policy shocks and stock market returns: evidence from Chinese solar panels, (2019) Journal of the Japanese and International Economies
Corsetti, G., Mavroeidi, E., Thwaites, G. and Wolf, M. Step away from the zero lower bound: small open economies in a world of secular stagnation, (2019) Journal of International Economics
Corsetti, G., Dedola, L., Jarociński, M., Maćkowiak, B., and Schmidt, S. Macroeconomic stablization, monetary-fiscal interactions, and Europe's monetary union, (2018) European Journal of Political Economy
Crowley, M.A., Meng, N., and Song, H. Tariff scares: Trade policy uncertainty and foreign market entry by Chinese firms, (2018) Journal of International Economics
Crowley, M.A. and Hillman, J.A. Slamming the door on trade policy discretion? The WTO appellate body's ruling on market distortions and production costs in EU-Biodiesel (Argentina), (2018) World Trade Review
Corsetti, C., Kuester, K. and Müller, G. J. Fixed on Flexible Rethinking Exchange Rate Regimes after the Great Recession, (2017) IMF Economic Review
Corsetti, G. Comments on "Obstfeld and Rogoff's international macro puzzles: a quantitative assessment" by J. Eaton, S. Kortum and B. Neiman, (2016) Journal of Economic Dynamics and Control
Corsetti, G. and Dedola, L. The "mystery of the printing press" monetary policy and self-fulfilling debt crises, (2016) Journal of the European Economic Association

Blogs and Commentary

Bartels, L. Understanding the UK’s position in the WTO after Brexit (Part I – The UK’s status and its schedules), ICTSD
Bartels, L. Understanding the UK’s position in the WTO after Brexit (Part II – The consequences), ICTSD

Cambridge Working Papers in Economics

Corsetti, G., Eichengreen, B., Hale, G. and Tallman, E. The Euro Crisis in the Mirror of the EMS: How Tying Odysseus to the Mast Avoided the Sirens but Led Him to Charybdis, (2019) CWPE1914
Corsetti, G., Erce, A. and Uy, T. Debt Sustainability and the Terms of Official Support, (2018) CWPE1864
Corsetti, G., Crowley, M. and Han, L. Invoicing and Pricing-to-Market - A Study of Price and Markup Elasticities of UK Exporters, (2018) CWPE1860
Crowley, M. A., Exton, O.… and Han, L. Renegotiation of Trade Agreements and Firm Exporting Decisions: Evidence from the Impact of Brexit on UK Exports, (2018) CWPE1839
Ari, A., Corsetti, G. and Dedola, L. Debt Seniority and Sovereign Debt Crises, (2018) CWPE1831

Authored Book

Giancarlo, C., Feld, L.P., Lane, P.R., Reichlin, L A new start for the Eurozone: dealing with debt, (2015) Monitoring the Eurozone - CEPR

Chapter in Book

Bown, C.P. and Crowley, M.A. The empirical landscape of trade policy, (2016) in the book: Handbook of commercial policy, Volume 1 - Elsevier
Crowley, Meredith Why are safeguards needed in a trade agreement?, (2010) in the book: Law and econmics of contingent protection in international trade - Cambridge University Press
Corsetti, G., Dedola, L. and Leduc, S. Optimal monetary policy in open economies, (2010) in the book: Handbook of monetary economics - North-Holland
Call for Papers - Published on - Friday 22nd March 2019
Paper proposals are invited for a conference to celebrate the 100th anniversary of the publication of J. M. Keynes's The Economic Consequences of the Peace. The "Economic Consequences of the Peace Centenary Conference" will take place on 9th-10th September 2019, at King's College, Cambridge.

Is Britain Currently in an Economic Crisis? - Published on - Wednesday 13th March 2019
Dr. Meredith Crowley took part in a Brexit discussion on the BBC news that looked into whether the UK is actually in a crisis over leaving the EU? You can listen to the programme on the BBC site.

Impact of Foreign Exchange Rate Changes on UK Economy - Published on - Sunday 17th February 2019
Dr. Meredith Crowley gave extended interview to BBC Radio 4's Analysis program on "Fair Exchange?", in which she discusses how a falling value of the British pound sterling could impact the British economy. The programme will be broadcast on the 18th February 2019 at 8.30pm and will be available to listen online after.

The Euro Crisis in the Mirror of the European Monetary System - Published on - Saturday 16th February 2019
Professor Giancarlo Corsetti, Barry Eichengreen, Galina Hale and Eric Tallman have published an article for VOXeu titled "The euro crisis in the mirror of the European Monetary System", which looks at why the recovery from the euro area crisis was delayed for a decade and the role suitable backstops could have played in speeding up the recovery from the crisis.

Official Lending and Debt Sustainability in the Euro Area - Published on - Wednesday 13th February 2019
Professor Giancarlo Corsetti, Aitor Erce and Timothy Uy have published an article for VOXeu titled "Official lending in the euro area: Lessons for debt sustainability", that looks at how lengthening loan maturities and managing debt repayment flows has substantial effects on sustainability.

Is Japan's EU deal a threat to the UK industry? - Published on - Wednesday 6th February 2019
Dr. Meredith Crowley discusses how the new free trade agreement between the EU and Japan could be a possible threat to the post-Brexit British industry, in both the Guardian Newspaper and Customs Today.

Debt Sustainability Assessments - Published on - Tuesday 29th January 2019
Professor Giancarlo Corsetti spoke at the European Stability Mechanism (ESM) on "Debt Sustainability Assessments: The state of the art". The seminar took place at the ESM premises, Luxembourg on January 25th 2019.

Could a Free Port in Teesside be Feasible? - Published on - Friday 25th January 2019
Dr. Meredith Crowley was quoted in The Economist article "Teesside bids to become Britain’s first free port", discussing the feasbility of a free port in Teesside.

Renegotiation of Trade Agreements and Firm Exporting Decisions - Published on - Monday 21st January 2019
Dr. Meredith Crowley gave three interviews about her Cambridge Working Papers in Economics research paper "Renegotiation of Trade Agreements and Firm Exporting Decisions: Evidence form the Impact of Brexit on UK Exports" (joint with Oliver Exton and Lu Han).

Keynote Speech at Ridge Conference - Published on - Wednesday 9th January 2019
Professor Giancarlo Corsetti's was the keynote speaker at the Ridge Conference in Montevideo, and debated "Capital flows, monetary and macroprudential policies, exchange rates, international reserve accumulation, sovereign debt and international spillovers"

Are Freeports the Future? - Published on - Friday 30th November 2018
Dr. Meredith Crowley discusses 'freeports' and the role they might play in a post-Brexit manufacturing boom on BBC Radio 4's In Business Programme (starts at 1m 47s).

Debt Sustainability: The State of the Art - Published on - Monday 26th November 2018
Professor Giancarlo Corsetti's debt sustainability report has been published by European Parliament. The landmark report highlights three critical areas limiting the effectiveness of current Debt Sustainability Assessments – liquidity risks, contagion risks and identification of debt limits – and sets out a plan for how the European assessment system can be reformed.

New Economics of Exchange Rate Adjustment - Event Date - Thursday 21st March 2019 - Friday 22nd March 2019
Cambridge-INET are holding an event "New Economics of Exchange Rate Adjustment" on 21st and 22nd March 2018, from 9.00am - 5.00pm, in The Elton-Bowring Room, Clare College, Cambridge. Please register you interest.

European Leaders Talk Brexit In Austria - Published on - Thursday 20th September 2018
Dr. Meredith Crowley was interviewed for NPR's Morning Edition on Brexit. "With just six months to go before Britain leaves the EU, European leaders are meeting in Austria to discuss progress". You can listen to the program on the NPR site.

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