Exchange rates and consumer prices: evidence from Brexit

Breinlich, Holger, Leromain, Elsa, Novy, Dennis and Sampson, Thomas ORCID: 0009-0006-2237-5497 (2019) Exchange rates and consumer prices: evidence from Brexit. CEP Discussion Papers (CEPDP1667). London School of Economics and Political Science. Centre for Economic Performance, London, UK.

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Abstract

This paper studies how the depreciation of sterling following the Brexit referendum affected consumer prices in the United Kingdom. Our identification strategy uses input-output linkages to account for heterogeneity in exposure to import costs across product groups. We show that, after the referendum, inflation increased by more for product groups with higher import shares in consumer expenditure. This effect is driven by both direct consumption of imported goods and the use of imported inputs in domestic production. Our results are consistent with complete pass-through of import costs to consumer prices and imply an aggregate exchange rate pass-through of 0:29. We estimate the Brexit vote increased consumer prices by 2:9 percent, costing the average household £870 per year. The increase in the cost of living is evenly shared across the income distribution, but differs substantially across regions.

Item Type:	Monograph (Discussion Paper)
Official URL:	https://cep.lse.ac.uk/_new/publications/discussion...
Additional Information:	© 2019 The Author(s)
Divisions:	Centre for Economic Performance Economics
Subjects:	H Social Sciences > HC Economic History and Conditions H Social Sciences > HG Finance H Social Sciences > HF Commerce
JEL classification:	E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E31 - Price Level; Inflation; Deflation F - International Economics > F1 - Trade > F15 - Economic Integration F - International Economics > F3 - International Finance > F31 - Foreign Exchange
Date Deposited:	17 Feb 2020 13:21
Last Modified:	11 Dec 2024 19:32
URI:	http://eprints.lse.ac.uk/id/eprint/102698

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