Skip to main content
SpringerLink
Log in

Brexit and macroprudential regulation: a DSGE perspective

  • Original Paper
  • Published:
International Economics and Economic Policy Aims and scope Submit manuscript

Abstract

This paper uses a small and simple theoretical DSGE model in order to conduct some exercises in comparative dynamics of shocks that can be associated with Brexit. We do so by comparing two policy environments, one where a flexible macroprudential regulation (FMR) is in place and one, where this is not the case. This enables us to evaluate whether and to what extent FMR helps to mitigate the Brexit related shocks. We conclude that FMR would indeed be helpful, although in quantitative terms only slightly so.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Fig. 1
Fig. 2
Fig. 3
Fig. 4
Fig. 5
Fig. 6
Fig. 7

Similar content being viewed by others

Notes

  1. In the arguably most restrictive database for scientific publications in economics a search for Brexit AND effect (OR some synonyma) returns 172 papers; the same exercise in Google Scholar leads to 37.900 (sic!) hits.

  2. Queen Elizabeth – whose private wealth was also severly affected by the crisis – famously asked why nobody saw the crisis coming during her first visit ever to the London School of Economics in late 2008. It would be interesting to discuss the nature and depth of the professional ignorance. But the profession should be very clear about the impossibility to forecast specific and rare events and their timing. Here it might suffice to note that there have been quite a few voices around who pointed to patterns in the sense of von Hayek (2007) that were destabilizing financial markets. This is also true with respect to the recent de-regulation of financial markets in the U.S. by the Trump administration.

  3. We do not assume an autoregressive process for γt here, because the effects we get would not be qualitatively different, albeit more pronounced.

References

  • Aliber RZ, Kindleberger CP (2017) Manias, panics, and crashes: a history of financial crises, 7th edn

  • Bank of England (2018) EU withdrawal scenarios and monetary and financial stability A response to the House of Commons Treasury Committee. (November), 1–88

  • Borio CEV, Shim I (2008) What can (macro-) prudential policy do to support monetary policy?

  • Busch B, Matthes J (2016) Brexit-the economic impact: a meta-analysis. Technical report, IW-Report

  • Dehmej S, Couppey-Soubeyran J (2017, 06) The role of macro-prudential policy in the prevention and correction of imbalances in the euro area. Technical report

  • Farhi E, Werning I (2016) A theory of macroprudential policies in the presence of nominal rigidities. Econometrica 84(5):1645–1704

    Article  Google Scholar 

  • Grossman GM, Rossi-Hansberg E (2008) Trading tasks: a simple theory of offshoring. American Economic Review

  • Guerrieri L, Iacoviello M (2015) OccBin: a toolkit for solving dynamic models with occasionally binding constraints easily. J Monet Econ 70:22–38

    Article  Google Scholar 

  • Iacoviello M, Neri S (2010) Housing market spillovers: evidence from an estimated DSGE Model. Amer Econ J Macroecon 2:125–164

    Article  Google Scholar 

  • Jerger J, Körner J (2018) Assessing macroprudential regulation: the role of the zero lower bound. Appl Econ Lett 25(9):580–583

    Article  Google Scholar 

  • Klingelhöfer J, Sun R (2017) Macroprudential policy, central banks and financial stability: evidence from China

  • Korinek A, Simsek A (2016) Liquidity trap and excessive leverage. Amer Econ Rev 106(3):699–738

    Article  Google Scholar 

  • Lambertini L, Mendicino C, Punzi MT (2013) Leaning against boom-bust cycles in credit and housing prices. J Econ Dyn Control 37(8):1500–1522

    Article  Google Scholar 

  • Minsky HP (1977) The financial instability hypothesis: an interpretation of Keynes and an alternative to “standard” theory. Challenge

  • Patel O, Reh C (2016) Brexit: the consequences for the EU’s political system. UCL Constitution Unit Briefing Paper 1–5

  • Rubio M, Carrasco-Gallego JA (2015) Macroprudential and monetary policy rules: a welfare analysis. Manch Sch 83(2):127–152

    Article  Google Scholar 

  • Rubio M, Yao F (2017) Macroprudential policies in a low interest-rate environment. Working Paper (April 2017)

  • Schoof U, Petersen T, Aichele R, Felbermayr G (2015) Brexit ? potential economic consequences if the UK exits the EU. Bertelsmann Stiftung

  • von Hayek FA (2007) Die Theorie komplexer Phänomene. In: Gesammelte Schriften, A 1, Wirtschaftstheorie und Wissen

  • Wadsworth J, Dhingra S, Ottaviano G, Van Reenen J (2016) Brexit and the impact of immigration on the UK. CEP Brexit Anal 5:34–53

    Google Scholar 

Download references

Acknowledgments

We are grateful for comments of participants of the workshop “The Influence of Brexit on the EU28: Banking and Capital Market Adjustments plus Macro Perspectives” on October 12, 2018 in Frankfurt/Main.

Author information

Authors and Affiliations

  1. University of Regensburg, Regensburg, Germany

    Jürgen Jerger

  2. Leibniz Institute for East and Southeast European Studies, Regensburg, Germany

    Jürgen Jerger

  3. European Central Bank, Frankfurt, Germany

    Jenny Körner

Authors
  1. Jürgen Jerger
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Jenny Körner
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Jürgen Jerger.

Additional information

Publisher’s note

Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.

Rights and permissions

Reprints and permissions

About this article

Check for updates. Verify currency and authenticity via CrossMark

Cite this article

Jerger, J., Körner, J. Brexit and macroprudential regulation: a DSGE perspective. Int Econ Econ Policy 16, 51–64 (2019). https://doi.org/10.1007/s10368-018-00429-8

Download citation

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s10368-018-00429-8

Search

Navigation