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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: http://ukandeu.ac.uk/



Principal investigator


Dr Meredith Crowley


Co-investigator


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, G., 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., Lafarguette, R. and Mehl, A. Fast Trading and the Virtue of Entropy: Evidence from the Foreign Exchange Market, (2019) CWPE1970
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. A. 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

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, M. A. 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
The chilling economic effects of Brexit uncertainty are intensifying - Published on - Tuesday 27th August 2019
Dr. Meredith Crowley, Oliver Exton, and Lu Han's paper "Renegotiation of Trade Agreements and Firm Exporting Decisions: Evidence from the Impact of Brexit on UK Exports", which looks into the effect of Brexit on exports, has been quoted by the Economist.

Fast Trading and the Virtue of Entropy - Published on - Wednesday 14th August 2019
Professor Giancarlo Corsetti, Romain Lafarguette and Arnaud Mehl have published an article for VOXeu titled "Fast Trading and the Virtue of Entropy". This column argues that high-frequency trading can increase market efficiency and the quality of trade.

What Free Ports Can and Can’t Achieve - Published on - Friday 9th August 2019
Dr. Meredith Crowley was quoted in The Economist article "What free ports can and can’t achieve", regarding the government's new policy to create free ports or free trade zones. It is proposed there will be ten of the new tariff-free zones around the UK, post-Brexit.

Freeports Advisory Panel - Published on - Monday 5th August 2019
Dr. Meredith Crowley has been appointed to serve on the Freeports Advisory Panel at the Department for International Trade under Secretary of State Liz Truss. This Panel has been set up to ensure the UK is ready to trade post-Brexit.

Fast Trading and the Virtue of Entropy - Published on - Wednesday 31st July 2019
Professor Giancarlo Corsetti has just published a paper in the European Central Bank's (ECB) Working Paper Series. The paper "Fast Trading and the Virtue of Entropy: Evidence from the Foreign Exchange Market" is joint with Romain Lafarguette and Arnaud Mehl.

Debt Sustainability Assessments - The State of the Art - Published on - Wednesday 17th July 2019
Professor Giancarlo Corsetti was invited to discuss "Debt Sustainability Assessments - The State of the Art" at the International Monetary Fund, by the IMF Strategy and Policy Review Department, on July 15th 2019.

Impacts of Brexit Report - Published on - Monday 24th June 2019
Dr. Meredith Crowley was involved in writing a new academic report that evaluates the impacts of Brexit so far. The Brexit Scorecard report has been conducted by the academic think tank The UK in a Changing Europe, and rates impact in four areas: the economy and public finances, fairness, openness and control.

UK in a Changing Europe - Published on - Wednesday 19th June 2019
Dr. Meredith Crowley has been made one of nine Senior Fellows by the ESRC for her research into "UK Trade Policy post-Brexit". The UK in a Changing Europe Hub has been given an additional £3.19 million, which will enable the hub to run for a further three years.

Optimal Monetary Stabilization in Response to Inefficient Capital Flows - Published on - Wednesday 29th May 2019
Professor Giancarlo Corsetti has been invited to the Bank of Japan-IMES 2019 conference in Tokyo, to speak on "Optimal Monetary Stabilization in Response to Inefficient Capital Flows". The conference runs from 29th - 30th May 2019.

The Centenary Conference on Keynes’s Economic Consequences of the Peace - Event Date - Monday 9th September 2019 - Tuesday 10th September 2019
Cambridge-INET is proud to announce a major conference on Keynes’s 1919 book. The book is celebrated as a brilliant piece of advocacy by one of the 20th century’s pre-eminent economists. This distinguished event will take place at King’s College, Cambridge, on September 9th-10th 2019. See the event website for more details.

Symposium on World Trade - Brexit Panel - Published on - Wednesday 1st May 2019
Dr. Meredith Crowley will be speaking on a panel at the Mathematical Sciences Research Institute's (MSRI) Symposium on World Trade at the British Academy on 23rd May 2019. Dr. Crowley will be taking part in the "Brexit and the United Kingdom’s Future Trade Relationships in the Global Economy" panel discussion.

Sticking Points in Brexit Talks - Published on - Thursday 25th April 2019
Dr. Meredith Crowley took part in a teleconference, "What's Next for Brexit?" hosted by the Pacific Council on International Policy, the leading think tank on international policy on the West Coast of the US.

Brexit Uncertainty - Published on - Monday 15th April 2019
Oliver Exton (PhD student) will present his research on "Brexit uncertainty", at the Royal Economic Society Annual Conference on Wednesday 17th April 2019. His talk will be based on the paper "Renegotiation of Trade Agreements and Firm Exporting Decisions: Evidence from the Impact of Brexit on UK Exports" (joint with Dr. Meredith Crowley and Lu Han).

Debt Sustainability and Debt Vulnerabilities - Published on - Friday 12th April 2019
Professor Giancarlo Corsetti will give a talk on Debt Sustainability and Debt Vulnerabilities at the distinguished Third Interdisciplinary Sovereign Debt Research and Management Conference. This event is being hosted by the Georgetown’s Institute of International Economic Law, in Washington D.C., on 11th-12th April 2019.

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