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News Uncertainty in Brexit United Kingdom

Author

Listed:
  • Renato Faccini
  • Edoardo Palombo

Abstract

After the Brexit referendum, the behavior of the UK economy defied widespread expectations, as it did not exhibit a V-shaped recession but a slow decline in production. We show that this pattern of propagation arises when uncertainty is about future, rather than current, fundamentals and if the expected duration of uncertainty is sufficiently long. We reach this conclusion within the confines of a heterogeneous firms model featuring news uncertainty rather than conventional uncertainty shocks. In the quantitative analysis, uncertainty is informed by firm-level probability distributions on the expected effect of Brexit on sales.

Suggested Citation

  • Renato Faccini & Edoardo Palombo, 2021. "News Uncertainty in Brexit United Kingdom," American Economic Review: Insights, American Economic Association, vol. 3(2), pages 149-164, June.
    • Handle: RePEc:aea:aerins:v:3:y:2021:i:2:p:149-64
    DOI: 10.1257/aeri.20200019
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    Citations

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    Cited by:

    1. Martin Geiger & Jochen Güntner, 2022. "The Chronology of Brexit and UK Monetary Policy," Economics working papers 2022-06, Department of Economics, Johannes Kepler University Linz, Austria.

    More about this item

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F15 - International Economics - - Trade - - - Economic Integration

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