Modelling events: the short-term economic impact of leaving the EU

| Publication date: 20 Jun 2016 | Theme: Macroeconomics | NIESR Author(s): Kirby, S; Piggott, R | JEL Classification: D80, E17, E27, E65 | NIESR Discussion Paper Number: 461

This paper presents a framework for modelling important socio-economic events in order to provide an informative counterfactual. This involves mapping the deep underlying shock associated with the event itself into a series of more tractable shocks consistent with the model being applied and calibrated from data, existing literature or ancillary analysis. The results should then be subject to testing of their sensitivity to the assumptions made. As a practical example, the paper uses the National Institute’s Global Econometric Model (NiGEM) to consider the short-term economic impact to the UK of leaving the European Union. We find that the UK economy would be around 2½ per cent smaller 2 years after a decision to leave the EU when compared to the counterfactual of deciding to remain a member.

Keyword tags: 
macroeconomic modelling
uncertainty
risk premia
investment
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