Opinion | Brexit, Borders, and the Bank of England (Wonkish) – The New York Times

But the BoE’s worst-case scenario shows a cost exceeding 10% of GDP, around three times what a CGE would tell you. Where’s that coming from?

You have 4 free articles remaining.
Subscribe to The Times

Part of the answer is that the BoE includes some nonstandard effects of trade: they assume that reduced trade (and foreign direct investment) will reduce productivity more than the direct impacts on resource allocation would predict. They cite some statistical evidence, but it’s important to realize that this is black-box, reduced-form stuff: there’s no explicit mechanism through which it’s supposed to happen.

However, these assumed nonstandard effects aren’t what’s driving the really bad scenarios; they only, as I understand it, contribute something like 1 percentage point of GDP to the predicted costs.

via Opinion | Brexit, Borders, and the Bank of England (Wonkish) – The New York Times

Both comments and trackbacks are currently closed.
%d bloggers like this: