Brexit in standard macroeconomics model

Since I am teaching MBA macroeconomics this summer, here is Brexit in the standard AD-AS model.  It ignores the zero lower bound, which complicates things, and also assumes that the short run negative effects we have seen this week persist. Bernanke posted what is probably the mainstream consensus about the theory of what is likely to happen.  James Hamilton at Econbrowser says much the same thing.  It may well be the case that two weeks from now nobody remembers what Brexit was or why it mattered, and there are no long term effects.  Anything can happen… British people suddenly feel an amazing spirit of can-do inventiveness and multicultural openness and an invigorated thriving economy emerges from the vote, why not?  But absent pink ponies, here is the standard analysis.



About mkevane

Economist at Santa Clara University and Director of Friends of African Village Libraries.
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