An import(ant) price of Brexit uncertainty

We estimate the impact of trade policy uncertainty (TPU) on CES import price indices, focusing on the implications of Britain’s exit from the European Union (Brexit). Our analysis reveals that a higher probability of Brexit increases U.K. import price indices by raising the prices of existing products and reducing product variety from the E.U. We find evidence that the risk of higher import protection from the 2016 referendum increased current import price indices by 11 log points. This amounted to a 2 log point increase in manufactured goods prices and a 0.6 log point decrease in consumers’ real income.

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