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How Do Exchange Rate Depreciations Affect Trade and Prices? A Survey and Lessons about UK Experience after June 2016

Author

Listed:
  • Yohannes Ayele

    (Department of Economics, University of Sussex)

  • L. Alan Winters

    (Department of Economics, University of Sussex)

Abstract

The sterling depreciation following the Brexit referendum was expected to boost the export sector of the UK economy. But the boom never arrived. This paper first reviews a selection of empirical research on the effects of exchange rate changes on import prices, consumer prices, export prices and trade quantities over the recent decades and then specifically discusses the effects of the recent sterling depreciation. It asks specifically whether the absence of an export boom should be considered a surprise or not. We find that the weakness of the export boom after the sterling depreciation was not wildly out of line with what the literature suggests. But we also argue, however, that the poor performance was also at least partly due to the huge increase in uncertainty about UK trade policy that accompanied the depreciation.

Suggested Citation

  • Yohannes Ayele & L. Alan Winters, 2020. "How Do Exchange Rate Depreciations Affect Trade and Prices? A Survey and Lessons about UK Experience after June 2016," Working Paper Series 1420, Department of Economics, University of Sussex Business School.
  • Handle: RePEc:sus:susewp:1420
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