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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: Economic and Social Research Council (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


Dr Lu Han


PhD student


Oliver Exton

External member


Dr Huasheng Song

Published Papers

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, (2020) Open Economies Review
Crowley, M. A., Exton, O. and Han, L. The Looming Threat of Tariff Hikes: Entry into Exporting under Trade Agreement Renegotiation, (2020) AEA Papers and Proceedings
Bodenstein, M., Corsetti G. and Guerrieri, L. Social Distancing and Supply Disruptions in a Pandemic, (2020) Covid Economics: Vetted and Real-Time 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., Jarocinski, M., Mackowiak, 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

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

Bergin, P. R. and Corsetti, G. The Macroeconomic Stabilization Of Tariff Shocks: What Is The Optimal Monetary Response?, (2020) CWPE2026
Crowley, M. A., Exton, O. and Han, L. The Looming Threat of Tariff Hikes: Entry into Exporting Under Trade Agreement Renegotiation, (2020) CWPE2016
Bodenstein, M., Corsetti, G. and Guerrieri, L. The Elusive Gains from Nationally-Oriented Monetary Policy, (2020) CWPE2006
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., Crowley, M. A. and Han, L. Invoicing and the Dynamics of Pricing-to-market - Evidence from UK Export Prices around the Brexit Referendum, (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 Heterogeneous Transmission of ECB Policies in a Post-COVID Europe - Published on - Friday 7th August 2020
Professor Giancarlo Corsetti, Joao B. Duarte (Nova School of Business and Economics) and Samuel Mann (IMF) have published an article for VOXeu titled "The Heterogeneous Transmission of ECB Policies: Lessons for a Post-COVID Europe". This column suggests that the disruption to market integration brought about by the COVID-19 crisis may create further challenges to conducting monetary policy in the euro area.

Can Social Distancing Improve the Trade-off Between Health and the Economy? - Published on - Wednesday 5th August 2020
Professor Giancarlo Corsetti will give the Cambridge Institute of Therapeutic Immunology and Infectious Disease's COVID-19 Weekly Webinar on "Can Social Distancing Improve the Trade-off Between Health and the Economy?". The webinar will take place online on Thursday 6th August 2020 at 2.00pm and will be hosted by Dr. Nicholas Matheson (CITIID PI and consultant in Infectious Diseases).

Fellowship of the British Academy - Published on - Friday 24th July 2020
The Faculty would like to congratulate Professor Giancarlo Corsetti, who has been elected a Fellow of the British Academy. A Fellowship of the British Academy (FBA) is an award granted by the British Academy to leading academics for their distinction in the humanities and social sciences.

European Parliament and Future EU-UK Trade Relations Webinar - Published on - Thursday 23rd July 2020
Dr. Meredith Crowley will be a panellist on the live webinar "The European Parliament and Future EU-UK Trade Relations", organised by the European Parliament Liaison Office in the United Kingdom. The webinar will take place on Thursday 3rd September 2020, between 12:30-2:00pm. It is open to all and registration is free.

Emerging Market Currency Risk Around ‘Global Disasters’ - Published on - Wednesday 24th June 2020
Professor Giancarlo Corsetti has had a chapter published in CEPR's ebook "COVID-19 in Developing Economies". The chapter "Emerging Market Currency Risk Around ‘global disasters’: Evidence from the Global Financial Crisis and the COVID-19 Crisis" (joint with Simon Lloyd (Bank of England) and Emile Marin (PhD Candidate))

UK-US Trade Deal Negotiations - Published on - Monday 22nd June 2020
Dr. Meredith Crowley gave testimony to the House of Commons International Trade Committee, via Zoom, on the 17th June 2020. You can watch a video of the meeting on the parliamentlive.tv website.

The Brexit Negotiations: A Stocktake - Published on - Thursday 18th June 2020
Dr. Meredith Crowley is one of the authors of a new report called "The Brexit Negotiations: A Stocktake", published by academic think tank UK in a Changing Europe. This report finds that it is hard to see how the sort of comprehensive deal the UK and EU say they want can be agreed without an extension.

Can Social Distancing Improve the Trade Off between Health and Economy? - Published on - Thursday 4th June 2020
Professor Giancarlo Corsetti's article entitled "Can Social Distancing Improve the Trade Off between Health and Economy?", which discusses how public health measures such as social distancing can reduce deaths by keeping the number of infected individuals from exceeding the capacity of the health care system has been featured by CNN and Trends (in Dutch).

Will ‘level playing field’ Issues Derail the UK-EU Negotiations? - Published on - Tuesday 2nd June 2020
UK in a Changing Europe have published a blog by Dr. Meredith Crowley and Dr. Lu Han on "Will ‘level playing field’ Issues Derail the UK-EU Negotiations?" The blog poses that key question now is whether the two sides will be able to bridge the gap in a way that facilitates continued negotiation and, ultimately, a free trade deal.

Perpetual Bonds are not the Best Way to Finance the European Recovery Fund - Published on - Monday 18th May 2020
Professor Giancarlo Corsetti, Aitor Erce and Antonio Garcia Pascual's article "Perpetual bonds are not the best way to finance the European Recovery Fund" has been featured by VoxEU CEPR Policy Portal. This column looks at the potential gains of using European borrowing and lending as two separate policy levers, instead of financing the ERF using joint perpetual debt.

Will the UK’s Free Ports Project Survive Covid-19? - Published on - Wednesday 13th May 2020
Dr. Meredith Crowley was quoted in the New Statesman article "Will the UK’s free ports project survive Covid-19?" which looks at the delays and possible cancellation of UK free ports project after the COVID-19 crisis.

Transatlantic Trade and Economic Cooperation through the Pandemic - Published on - Tuesday 5th May 2020
Dr. Meredith Crowley will join Ed Balls, Nick Macpherson, and George Osbourne to discuss Covid-19 and the next round of the UK-US Free Trade Agreement at a webinar organised by The Strand Group. Please register to watch the webinar.

Can Social Distancing Improve Trade Between Health And Economy? - Published on - Friday 1st May 2020
Professor Giancarlo Corsetti's research entitled "Can Social Distancing Improve Trade Between Health And Economy?" has been featured by CNBC and University of Cambridge Research News.

Is The ESM’s Pandemic Crisis Support Fit For Purpose? - Published on - Wednesday 29th April 2020
Professor Giancarlo Corsetti, and Aitor Erce have published an article for VOXeu titled "Maturity, Seniority and Size: Make sure the ESM’s pandemic crisis support is fit for purpose!". This column looks at the discussions around the European Stability Mechanism (ESM) credit line and if the ESM should consider waiving its seniority and engaging with countries using longer maturity structures.

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