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Brexit and the cost of living: a tale of two phases

Author

Listed:
  • Federico Di Pace
  • Giacomo Mangiante
  • Riccardo Masolo

    (Università Cattolica del Sacro Cuore
    Dipartimento di Economia e Finanza, Università Cattolica del Sacro Cuore)

Abstract

We employ Synthetic Control Method techniques to estimate the causal effect of Brexit on the consumer price index (CPI) in the United Kingdom. We construct a counterfactual CPI index from a weighted pool of comparable economies and find that the price level of the United Kingdom rose approximately 7 percentage points more than its synthetic counterpart, between 2016Q2 and 2024Q4. This accounts for over a quarter of total inflation during the period. We attribute about 2 percentage points of this increase to the depreciation of the British pound after the Referendum and the remaining 5 percentage points to the change in trading relationships that ensued the 2021 Trade and Cooperation Agreement.

Suggested Citation

  • Federico Di Pace & Giacomo Mangiante & Riccardo Masolo, 2025. "Brexit and the cost of living: a tale of two phases," DISCE - Working Papers del Dipartimento di Economia e Finanza def147, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).
    • Handle: RePEc:ctc:serie1:def147
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    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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