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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

Bodenstein, M., Corsetti G. and Guerrieri, L. Social Distancing and Supply Disruptions in a Pandemic, (2021) Quantitative Economics, accepted
Bergin, P. R. and Corsetti, G. Beyond Competitive Devaluations: The Monetary Dimensions of Comparative Advantage, (2020) American Economic Journal: Macroeconomics
Acconcia, A., Corsetti, G. and Simonelli, S. Liquidity and Consumption: Evidence from Three Post-earthquake Reconstruction Programs in Italy, (2020) American Economic Journal: Macroeconomics
Corsetti, G., Erce, A. and Uy, T. Official Sector Lending Strategies During the Euro Area Crisis, (2020) The Review of International Organizations
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

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

Crowley, M. A., Han, L. and Son, M. Dominant Currency Dynamics: Evidence on Dollar-invoicing from UK Exporters, (2020) CWPE20113
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
Social Distancing and Supply Disruptions in a Pandemic - Published on - Monday 22nd March 2021
Professor Giancarlo Corsetti will give an online seminar, co-hosted by the CEPII and T3M on Thursday 8th April 2021, 2:30-4:00pm (Paris time).

Brexit, Covid-19, Business, and Economic Inequality - Published on - Wednesday 3rd March 2021
Dr. Meredith Crowley will be speaking at two panels as part of The UK in a Changing Europe's Spotlight series. The online events will take place on Tuesday 9th March 2021 and Friday 12th March 2021, from 12.00 – 1.15pm. Both are free to register and watch.

Social Distancing: Does Voluntary or Mandated Distancing have more Economic Impact? - Published on - Monday 1st March 2021
New research by Professor Giancarlo Corsetti questions the assumption that voluntary social distancing has less economic impact than mandated social distancing in the current pandemic.

Phillips Curve and Internal Devaluation Mini Conference - Published on - Tuesday 16th February 2021
Cambridge-INET, the Centre for Macroeconomics and the Cambridge Faculty of Economics are holding a Mini Conference on the "Phillips Curve and Internal Devaluation: The Regional Transmission of Business Cycle and Monetary Shocks". It will take place on Tuesday 16th February 2021 from 3PM – 5.50PM GMT and will be held online. See the event page for more details.

It’s All in the Mix: How Monetary and Fiscal Policies Can Work or Fail Together - Published on - Wednesday 10th February 2021
Professor Giancarlo Corsetti is one of the speakers at the Presentation of the 23rd Geneva Report on the World Economy webinar, which is being held on 3rd March 2021, 1:00 - 2:30 PM (UK time).

When Flexible Exchange Rates Don’t Insulate Economies from External Shocks - Published on - Wednesday 3rd February 2021
Professor Giancarlo Corsetti, Keith Kuester (University of Bonn), Gernot Müller (University of Tübingen) and and Sebastian Schmidt (European Central Bank) have published an article for VOXeu titled "When flexible exchange rates don’t insulate economies from external shocks".

Eurozone Shocks Impact Outside the Eurozone - Published on - Monday 1st February 2021
New research by Professor Giancarlo Corsetti suggests that monetary and economic shocks in the Eurozone have a significant impact in neighbouring countries outside the zone. But this impact is no different in countries which peg their currency to the euro, than in countries with a flexible exchange rate, such as the UK.

The Effect of Trade Deals on UK Farming and Food Prices - Published on - Monday 1st February 2021
Dr. Meredith Crowley was interviewed for BBC1's Countryfile, where she talked about how future trade deals could affect the UK, especially UK farming and food prices.

Policy Panel - The Monetary-Fiscal Policy Mix Strikes Back - Published on - Tuesday 19th January 2021
Prof. Giancarlo Corsetti is to speak at a policy panel on the 2020 Geneva report. The panel will discuss the contribution of the mix policy mix to the stabilisation of tail events and disruptive crises, such as the COVID-19 pandemic.

Launch of the Geneva Report on the World Economy - Published on - Tuesday 12th January 2021
Prof. Giancarlo Corsetti is one of the speakers at the launch of the Geneva Report on the World Economy, which he recently co-authored.

2020 Geneva Report Quoted - Published on - Wednesday 16th December 2020
A report co-authored by Prof. Giancarlo Corsetti from the Faculty of Economics has been mentioned by Reuters. The 2020 Geneva Report looks at macroeconomic and financial instability and disruptive crises such as the COVID-19 pandemic.

Brexit - As Consumers, Britons have the Most to Lose - Published on - Tuesday 15th December 2020
Dr. Meredith Crowley was interviewed about Brexit and it's effect on the UK economy, by the daily French newspaper La Croix. Dr Crowley answered questions on the proposed post-Brexit trade deals that Prime Minister Boris Johnson is negotiating with countries such as Japan, China and the US.

Geneva Report: Fiscal Policies Must Work Together - Published on - Tuesday 15th December 2020
The 2020 Geneva Report has been published. Co-authored by Professor Giancarlo Corsetti from the Faculty of Economics at the University of Cambridge, the 23rd report looks at macroeconomic and financial instability and disruptive crises such as the COVID-19 pandemic.

The Freeport Con - Published on - Thursday 12th November 2020
Dr. Meredith Crowley was quoted in the New Statesman article "The Freeport Con", which looks at the setting up of freeports as a post-Brexit trade policy. The UK government is championing these free economic zones, but experts are not convinced they will work.

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