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News Uncertainty in Brexit United Kingdom

  • Renato Faccini
  • Edoardo Palombo
American Economic Review: Insights
vol. 3, no. 2, June 2021
(pp. 149-64)
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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.

Citation

Faccini, Renato, and Edoardo Palombo. 2021. "News Uncertainty in Brexit United Kingdom." American Economic Review: Insights, 3 (2): 149-64. DOI: 10.1257/aeri.20200019

Additional Materials

JEL Classification

  • E22 Investment; Capital; Intangible Capital; Capacity
  • E23 Macroeconomics: Production
  • E24 Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
  • E32 Business Fluctuations; Cycles
  • F15 Economic Integration