Brexit and the pound
Speech given by
Ben Broadbent, Deputy Governor Monetary Policy
Imperial College, London
23 March 2017
I'd like to thank Matt Corder, Chris Salmon, Michael Saunders, Greg Thwaites and Anthony Veal,
along with other colleagues, for their helpful comments and assistance. I reserve particular thanks for
my Economic Advisor Alina Barnett.
Introduction and summary
The vote to leave the EU led to a big drop in sterling's exchange rate. One consequence is a rise in import
real income. We may already be seeing the impact of that squeeze on
prices and a squeeze on households'
retail spending, which in real terms fell quite sharply around the turn of the year.
While it's hit the income of households, however, the depreciation has come as a boon for many exporters.
In sterling terms goods export prices rose 12% through the course of last year. This will significantly have
boosted exporters' profitability and with
it the incentive to invest in extra capacity.
In general, it's not really right - -
not enough at least to think about the impact of a change in the exchange
rate in isolation. Asset prices are volatile in the short run, sometimes inexplicably so. But over time they tend
to move for a reason. They're driven by deeper things that can have important effects of their own. To get the
full picture you need to take both into account, not just the partial impact of a change in the exchange rate
but those of its underlying drivers as well.
Take sterling's fall in 2008 and 2009. One plausible explanation was that the financial sector is more
important for the UK - notably its exports and the government's tax receipts - than for other countries. So its
economy and public finances were more vulnerable to the global financial crisis. The depreciation helped to
cushion these effects but it wasn't enough to outweigh them. The downturn was no less severe here than
elsewhere, notwithstanding sterling's fall.
more recent decline was clearly prompted by the referendum result. It also seems likely that the
Sterling's
foreign exchange market has decided the consequences are negative. The most plausible explanation for
the depreciation is that, in the eyes of the market, leaving the EU will make exporting harder and more costly.
To help compensate the currency needs to be cheaper.
hasn't happened yet. Back
There are many important differences with 2008/09, of course. One is this: Brexit
then sterling's fall happened alongside its cause. On this occasion the depreciation reflects beliefs about a
change in the UK's future trading arrangements, but it's acting on an economy where those arrangements
- -
are for the time being unchanged. The result higher prices and profits but unchanged rules and costs
represents something of a sweet spot for exporters and businesses that compete with imports.
How they respond is one important determination of economic growth this year. Usually, one of the more
positive aspects of an exchange-rate depreciation is that, by raising their profitability, it encourages the
expansion of firms in the tradable sector. With the world economy in better health than for some time, there
is certainty every incentive to do that today. On this occasion that response might be more muted than usual,
however, because it's not clear how long the sweet spot will last. If the currency market is right the UK's
if it's too pessimistic sterling is likely to rebound. Either
future trading relationships will be less favourable;
way, future returns in the tradable sector may not be as healthy as they are right now. This may act as
something of a deterrent to longer-term, sunk-cost investments in that sector.
In what follows I'll begin by looking at sterling and what economics has to say about its reaction to the
referendum result. I'll then say something about how depreciations work in small open economies, in
particular their impact on profitability and investment in the tradable sector. There's a short concluding
section.
Sterling's response to the EU referendum: some
exchange-rate economics
So let's begin with the depreciation and its proximate cause, the outcome of referendum. The link between
the two was clear long before the vote itself. In the months leading up to June 23 there was a tight
correlation between the value of the currency and the perceived likelihood of a "remain" vote (Chart 1).
That's why the MPC, in conditioning its May
Chart 1: Sterling sensitive to expected result well
before the referendum itself
2016 forecasts on that outcome, assumed a
higher path for the exchange rate. It's also why
the Committee suggested there might be a
"sharp correction" in sterling's value in the event
of a leave vote. And in the event that's what we
got. On June 23 and 24 sterling fell further
against the dollar than over any two-day period
since the devaluation of 1967.
You didn't need any economics to make this
prediction - the relationship in in Chart 1 was
enough. But you probably do need some
economics if you want to understand why the
currency reacted this way. While we don't know
Source: Bloomberg, Thomson Reuters Datastream, Betfair
precisely what's in the collective mind of the
foreign exchange market, in my view there are two broad possibilities: Brexit is expected either to weaken
domestic demand or raise the cost of exporting.
To understand these effects remember first what the real exchange rate is: the relative price of consumption
here compared with that in our trading partners1.
Suppose you split consumption into stuff that can only be produced domestically like homes
("non-tradables"
or haircuts) and things that can also be imported from abroad ("tradables" such as
holidays and cars). This
distinction is important because you'd expect prices of traded goods and services to move reasonably
closely across countries (I'll return to this point later). If so, it turns out you can
re-express the real exchange
rate in terms of another relative price, that of non-traded to traded output2:
pNT
ε ≈ ⁄
[1]
pT
So when things happen that push up this relative price, whether on the demand or the supply side of an
economy, the real exchange rate will tend to move in the same direction.
Take domestic demand first. The material distinction between non-traded and tradable output is that,
whereas the first can only be supplied domestically, the second is also produced elsewhere: its overall
supply is more "elastic". New houses can only be built by domestically located firms; cars are made
everywhere.
So even a general increase in domestic demand will put relatively more pressure on the resources used to
produce non-tradables as their global supply is more limited. As a result their relative price will tend to rise in
domestically led expansions and to fall in contractions. This is illustrated in an extremely stylised way in
Chart 2. You can think of the appreciation, in this case, as the economy's way of tempering the effects on
relative demand and, at the same time, encouraging resources to move where they're needed. If domestic
demand strengthens, the resulting rise in the exchange rate reduces returns in the tradable sector and raises
them in the non-traded sector, drawing investment from the first to the second.3
This isn't just theory. We know, for example, that fiscal expansions tend to be associated with an
appreciating exchange rate4. More generally real exchange rates tend to be pro-cyclical. Chart 3 plots the
- sterling's real exchange rate and domestic demand growth -
relationship for the UK, with both lines plotted
1
I'm here in the real forces driving the exchange rate. The nominal rate, e =
interested εP*/P, where P* and P are price levels at home
and abroad respectively, also depends on relative inflation rates. And in the shorter run, when those prices are sticky, monetary events
can and do affect real exchange rates. But over time, the real exchange rate depends more on non-monetary things. And in this
particular instance, sterling's fall had essentially nothing to do with differences in monetary policy (as measured, for instance, by shifts in
relative short-term interest rates). Note too that, judging by the behaviour of forward inflation rates, financial markets too consider this to
be a real phenomenon: five years ahead, the expected value of eP/P* is around 16% lower than it was at the start of 2016.
2
This ratio then has to be divided by the same ratio in our trading partners. Obviously for every domestic shock described here, the
exchange rate is affected symmetrically, and in the opposite direction by the same phenomenon in the rest of the world.
3
The ease with which this happens is what determines the slope of the supply curve in Charts 2 and 4. In the limit, if resources can
move seamlessly and costlessly between sectors, the supply curve is flat. But this reallocation could take a long time. Empirically, over
cyclical horizons, the correlation between exchange rates and demand disturbances is clear.
4
Arguably, the recent appreciation of the US dollar owes something to the expectation that the incoming administration will loosen fiscal
policy.
as four-year moving averages. The graph also illustrates quite how weak the currency is at the moment (the
green dot on the right-hand side) given the recent robustness of domestic demand growth (the blue dot).
Among other things this framework has important implications for the link between exchange rates and
"imbalances". The UK has periodically experienced episodes where the exchange rate is strong, the
external
balance deteriorates and, on the production side of the economy, the traded sector gets "crowded out". One
often hears that all this is the "consequence" of an exchange rate", as if that were some
"over-valued
arbitrary, unexplainable thing.
Chart 2: Stronger domestic demand tends to Chart 3: UK data bear this out
push up the exchange rate
Source: ONS and Thomson Reuters Datastream
But in these situations the exchange rate is more symptom than cause: the underlying driver is relatively
And it's this that jointly pushes up both the value of currency and the
strong growth in domestic demand5.
trade deficit6. Indeed I think this helps explain to explain why sterling appreciated so strongly after 2012 (and
until last year): relative to their respective incomes, domestic demand grew much more strongly in the UK
than among its main trading partners in continental Europe.
There's a limit to the duration of financial deficits, at an aggregate as well as an individual level. It was
always unlikely that the UK could finance a 5%-of-GDP current account deficit indefinitely and the market
would presumably have anticipated a closure at some point, partly via weaker growth of domestic demand.
But one possibility, regarding sterling's recent
behaviour, is that the foreign exchange market believes that
leaving the EU will hasten the correction of these imbalances. If, for as long as it lasts, financing the deficit
5
The word "relatively" is important here - what matters is the behaviour of domestic demand compared with that in other countries. If
demand weakens in other countries the home country's exchange rate will still appreciate
even if nothing happens to domestic savings
rates. [More here on global imbalances]
6
-
For a thorough treatment of the relationship between imbalances and the exchange rate and specifically the chain of causation
-
running from the former to the latter see Obstfeld and Rogoff (2000), Obstfeld and Rogoff (2007).
relies on "the kindness of strangers" (as the Governor once described it) perhaps the
foreign exchange
market thinks those strangers will be less generous to a UK outside the EU. International capital markets
might require a higher premium for sterling finance. If so, this would slow the growth of domestic demand
that much earlier, accelerate a rebalancing of the economy and depress the fair value of the exchange rate7.
While possible in principle, I'm not convinced this is the main explanation for sterling's reaction to the
referendum result. The currency has remained weak even in the face of robust consumption growth since
that date. And if the foreign exchange market had anticipated a higher cost of finance for sterling borrowers
after Brexit you'd probably have seen the same expectation in other financial markets -
a steeper yield
curve, perhaps, or higher premia in UK banks' funding markets. That hasn't really happened.
Chart 4: Weaker productivity in tradable Chart 5: Supported by cross-country evidence
sector depresses the exchange rate
PNT /PT
SNT /ST
DNT /DT
YNT /YT
Source: Penn World Table
A more likely channel, to my mind, involves expected supply. Go back to that relationship in [1] and imagine
now that something happens to push up the cost of producing or selling tradable goods. Perhaps productivity
in that sector grows less rapidly (relative to that in our trading partners)8. Or perhaps tariff and/or non-tariff
barriers are imposed on international trade. Either way, if the relative cost of producing or selling tradable
output goes up then so must its relative price (Chart 49). In effect, the currency falls to help absorb these
costs. In doing so it spreads them throughout the economy: even those in the non-traded sector have to work
longer to buy the same quantum of imports.
7
Sometimes this point is expressed in terms of the "sustainable" current account deficit but it amounts to the same thing.
8
Cost is inversely related to productivity.
9
Note that a contraction in tradable productivity, which is the denominator in the SNT/ST curve, shifts it to the right.
There is ample empirical evidence of this channel in the data. Chart 5, for example, is a cross-country plot of
relative price levels (the real exchange rate) against per-capita income. The latter is determined by
whole-economy productivity. But much of the variation in aggregate productivity, across countries as well as
over time, is in the tradable sector specifically. So the correlation is reasonably persuasive evidence of the
And it's quite possible that this is what
link between tradables productivity and exchange rates10. lies behind
sterling's reaction to the referendum. Foreign exchange markets may believe that exiting the EU will in some
-
way raise the cost of exporting either directly, via the erection of barriers of one sort or another, or by
depressing inward investment and productivity in the tradable sector (relative to that in other countries).
What does the weaker currency do in the meantime? Some more exchange-rate economics
I should emphasise at this point that what I'm musing about here are the implicit beliefs of the foreign
exchange market. The specific question is why that market thinks the long-term consequences of leaving the
EU warrant a lower sterling exchange rate. For its part the MPC has no particular expectation about the
forthcoming negotiations. The currency market could turn out to have been too pessimistic.
-
Two things are clear, however. First, if the market has misjudged the risks if the UK emerges from this as
open an economy as it is today, or more so - one imagines the exchange rate will re-appreciate, all else
equal. I'll come back to the significance of this point later on.
Second, the weaker exchange rate is acting on an economy whose trading relationships are for the time
being quite unchanged. As yet Brexit has done nothing directly to affect the UK's openness because Brexit
hasn't happened.
The MPC is always keen to caution against treating a change in asset prices as some independent,
"exogenous" event, without considering its underlying cause. This case is a bit special, however: in this
instance the cause has yet to occur. We've had the reaction in asset prices well ahead of the event. In that
sense it's more independent than usual.
And what's striking about this is that economists usually view independent depreciations in the exchange
rate as expansionary rather than contractionary. Yes, they dent real household incomes and therefore
consumer spending. But the usual view is that this negative effect is compensated, indeed outweighed, by
positive effects on other areas of spending, net exports and investment. With the additional tailwind of a
strengthening world economy you might expect most forecasters to have predicted faster economic growth
following sterling's decline. Yet the opposite is true: after 2% through 2016 (in the year to Q4), the consensus
forecast is that UK GDP growth will slow to 1.2% through this year.
10
In economics the impact on the exchange rate of variations in tradable versus non-tradable productivity is known as the
effect (Samuelson (1964); for
"Balassa-Samuelson" a survey of the evidence see Egert et al (2006)).
of sterling's fall will predominate
I want to ask why this is. Why do forecasters think the more negative effects
- what impediment might there be to its more positive effects? To do so it's worth taking a closer look at how
depreciations actually work.
The view one often hears is that they make UK output cheaper in foreign currency terms, encouraging extra
demand from overseas. I'm not sure that's quite right.
I said earlier that economists often make the approximation that prices of tradable goods and services are
the same in all countries (measured in some common currency). This makes intuitive sense when you think
of an area like commodities. For example, you would not expect sterling's fall to reduce the dollar price of
North Sea oil or the euro price of UK-produced wheat. Those are determined largely in global markets. What
happens instead is that their prices go up in sterling terms. And if there is a response of net export volumes it
comes about largely because the rise in prices directly boosts the profitability of UK-based production.
Whether we're talking about firms that export or those that compete with imports, it encourages such
businesses to expand. In other words it's a matter of supply not demand.
Chart 6 gives a stylised description. In a competitive market the demand curve facing an individual firm (and
those in a relatively small country) is essentially flat. Domestic events don't have much effect on the global
price. When the currency falls, pushing up prices and profits of outward-facing firms, the response of export
volumes depends on the slope of the supply curve: to what extent do firms in the tradable sector have the
capacity to raise output and, where that is insufficient, the willingness to invest in more?
Chart 6: For a small open economy tradable Chart 7: Depreciations push up the sterling price of
demand is highly elastic goods exports as well as those of imports
Source: ONS and Thomson Reuters Datastream.
* excluding oil and erratics.
Now commodities may be an extreme case. They're essentially homogenous - one country's output is much
like another's. But even in non-commodity goods markets you find a similar pattern. The UK is relatively
small, accounting for only 3% of international goods trade (even including oil). Many UK firms are to a
significant extent "price takers" in international markets. And you can see from Chart 7 the close correlation
between the sterling price of the UK's
(non-oil) goods exports and the exchange rate. The reaction is a bit
less than one-for-one but in general no less marked than that of import prices. That's true of the most recent
period as well: prices of non-oil goods exports rose 12% through the course of last year, in line with those of
imports.
Admittedly, the behaviour of the sterling price of services exports is rather different. They're more stable in
the face of exchange-rate movements (Chart 8), implying that depreciations do indeed reduce them in
Services are less homogenous than goods and there's
foreign currency terms. I think this is understandable.
more room for non-price competition. The UK has a larger presence in this area, accounting for 7% of global
services trade in total, 12% for business and financial services specifically. Those wholesale services are
relatively specialised.
Chart 8: Sterling price of services exports more Equally, and for many of the same reasons, the
stable
evidence suggests that service export volumes are
much less sensitive to any cross-country variations in
prices than in goods markets. Indeed it's only
because of this relative insensitivity that such
variations can persist for any length of time.
At any rate, my main point here is that the positive
effects of a currency depreciation depend at least as
much on the response of domestic firms as on that of
foreign buyers. If firms in the tradable sector have
plenty of spare capacity you'd expect net export
volumes to rise significantly; once capacity
constraints start to bind you'd expect greater
Source: ONS and Thomson Reuters Datastream
investment; in general, given that the degree of spare
capacity is bound to vary across firms, you'd expect
to see both.
-
I think this is what you have seen in the past in both directions. The data are limited. Detailed sectoral
numbers on profits and investment exist only from the early 1990s and until 2014. But that period does at
least cover two significant moves in the currency, even before the financial crisis: the big drop when sterling
fell out of the European Exchange Rate System (ERM) in 1992, after which the exchange rate remained
relatively low for a few years; and the equally large re-appreciation in 1997 and 1998.
As it happens, I think these swings can be traced back to the demand-side influences I discussed in the last
section. Subdued domestic consumption, public as well as private, supressed the exchange rate in the years
after sterling exited the ERM; much stronger growth, associated in part with the revival in the housing
market, helped to push it back up later that decade (you can see these broad movements back in Chart 3).
And if you define the "tradable" part of the economy as those sectors with
above-average trade shares,
"non-tradables" the rest, they behaved broadly as you might expect. Aggregate profits recovered strongly in
the early 1990s, as they tend to in the early stage of economic recoveries. But, thanks to a jump in the
sterling price of their output, the rise was most marked for firms exposed to international trade (Chart 9).
There was plenty of slack in the economy (Chart 10 uses the balances on capacity use from the BCC
surveys). Within the tradable sector in particular this allowed for a marked rise in net export volumes. In the
three years after ERM exit the UK's trade balance improved by close to 2% of GDP. Furthermore, despite
-
that spare capacity, business investment too began to accelerate and again it was the tradable sector
whose spending grew fastest (Chart 11).
Chart 9: Profits in tradable sector boosted by Chart 10: Unlike early 1990s, there is now
depreciation in early 90s, hit by later appreciation limited spare capacity, including in tradable
sector
Source: ONS and Bank of England calculations Source: BCC and Bank of England calculations
Chart 11: Investment in tradable sector also Chart 12: Business investment growth weak in
sensitive to exchange rate 2016
Source: ONS and Bank of England calculations Source: ONS, CBI, BCC and CIPS
These trends then went into reverse after sterling's
re-appreciation later than decade. If subdued domestic
consumption had allowed the economy to "rebalance" through the
1992-97 period, the opposite occurred
demand growth "crowded out" the tradable sector by helping
over the following few years. Stronger domestic
to push up sterling's exchange rate. This led to falls in prices, profits and investment in the tradable sector.
What about today? Sadly we don't have such detailed information on anything
like a real-time basis. Indeed
we have very little data of any kind, even at an aggregate level, to tell us how profits and investment have
behaved since last summer. But here's my take on what we do know:
 First, it's likely that profitability has
improved significantly in the tradable sector of the economy. We
know that non-financial corporate profits in aggregate rose 10% in the year to Q3. We know too that
export prices rose strongly last year, much faster than those of domestic-facing firms11. At a rough
guess, and relative to that in the non-traded sector, this will have pushed up the rate of return in the
traded sector by 2-3 percentage points12.
 - -
Second and this is in sharp contrast to the early 1990s there is only limited spare capacity in the
economy, including in its more tradable sectors (Chart 10 again). One would certainly expect net
export volumes to improve this year. But one would also expect a greater share of the response to
the depreciation, compared with the early 1990s, to come via stronger investment, less of it from
11
While export prices rose 12% in the year to 2016Q4, gross output prices across the economy as a whole, excluding the government
sector, rose by around 41⁄2% (by gross I mean including the cost of imports). With exports worth around one quarter of gross output, this
would imply output-price inflation in the rest of the economy of less than 2%.
12
Higher prices boost profits, and disproportionately so, given the operational gearing. On the other hand exporting firms will also be
paying more for their imports, on which they rely more than others. To work out the overall impact on profits you need to net out the
extra cost of imports. We've done this by passing the rise in both export and import prices through the UK's input:output tables and used
the same definition of tradables and non-tradables as before.
higher output in the tradable sector. There is less room to raise output but more of an incentive to
add to that capacity.

Third, and despite these incentives, growth of overall business investment in the UK was relatively
weak last year. Early official estimates say it shrank slightly in the year to Q4, by around 1%. (This
compares with positive growth of 2% or so in the Euro area.) And although those estimates are
particularly prone to revision, the various survey indicators also subsided in 2016 (Chart 12).
This last point is the critical one. The world economy is looking better than it has done for some time. Against
this backdrop, and given the existing capacity constraints, the fall in sterling provides a powerful incentive to
invest in the UK's tradable sector. All else equal, it would make sense for existing exporters to expand; for
domestic-facing firms to think about entering new markets; and for multinationals to shift production to the
UK.
Yet some caution would also be understandable. All else is not equal. While much is at stake, no-one can be
sure about the eventual outcome of the Brexit negotiations. The evidence suggests that investment is less
responsive to these commercial incentives the greater the degree of uncertainty about future returns13. Nor is
it just a matter of uncertainty: it's unlikely that these propitious conditions will last forever. Either the currency
market is right about the consequences of Brexit, in which case the UK's trading relationships will become
wrong, in which case sterling is likely to recover. Yet even in normal times, currency
less favourable; or it's
moves generally have to endure for quite a while before multinationals decide to shift production from one
location to another14.
So these are not straightforward decisions. Put simply, firms in the tradable sector, and those thinking of
entering it, will be weighing the boost in the current rate of return against any additional risk premium they
currently require of such investments. The question is whether the first is big enough to compensate for the
second.
Summary and conclusion
The adjective is bandied around quite a bit these days. The term's a bit previous. A better
"post-Brexit"
description of the UK's current economic circumstances is but
"post-referendum" "pre-Brexit".
The result is something of a sweet spot for exporters. Sterling fell sharply after the referendum and, despite
the strength of consumption since then, has remained close to record lows. The most likely explanation is
that the foreign exchange market believes that, when it does actually occur, leaving the EU will raise costs in
13
Bloom et al (2007); for more on the impact of uncertainty on sunk-cost investment decisions see Dixit and Pindyck (1994); Handly
and Limao (2013) consider the specific case of uncertainty about tariffs.
14
For example Goldberg (2007).
the UK's tradable sector. Whether this occurs through explicit tariffs,
non-tariff barriers or lower productivity
growth, the currency would need to be weaker in compensation.
UK's trading rules are for the time being unchanged. The result is that the costs and ease of
But the
exporting are unchanged but the returns to it significantly higher. With the world economy looking better than
for some time the circumstances for the tradable sector could hardly be more propitious. One would expect
firms in the more open parts of the economy both to use up any spare capacity and, in the normal course of
events, to invest significantly more in that capacity as well. Over the longer run, this reallocation of resources
is what the positive impact of an exchange-rate depreciation relies upon.
It's possible, of course, that Brexit won't be as bad as the foreign exchange market appears to believe. If the
government succeeds in negotiating a
"new, comprehensive, bold and ambitious free trade agreement15"
countries, the UK's overall degree of openness may
with the EU, and in opening up trade with non-European
not worsen and it could improve. If so, and all else equal, the currency should in time rebound.
But this makes longer-term investment in the tradable sector a somewhat tricky decision. Either the currency
market is too pessimistic, in which case sterling's depreciation is likely to be reversed over time. Or it's not, in
which case the costs of exporting will eventually go up. Barring some other source of exchange rate
weakness, such as a sharp rise in the household saving rate (which would have its own implications for the
economy), the sweet spot is unlikely to last indefinitely. So while investments with shorter-term payoffs make
commercial sense, especially for those already running up against capacity constraints, the uncertainties
involved in longer-term decisions could temper the usually positive response of business spending to
in the exchange rate. Indeed they're probably already doing so somewhat.
depreciations
In its latest forecasts the MPC expects this caution to persist. That's why, in the central projection in the
February Inflation Report, growth slows slightly this year, from 2.0% at the end of last year to 1.7% by
2017Q4. Though there are plenty of other variables to consider, the negative effects of the depreciation on
consumption (via import prices and household income) are expected marginally to outweigh its more positive
effects on other parts of demand.
If only implicitly the consensus forecast seems to attach more weight to this Brexit-related caution. My guess
is that financial markets do so as well. Despite higher profitability, business investment is projected to
stagnate or fall this year even as it accelerates significantly further in other developed economies. The more
negative effects on consumption clearly predominate and growth of aggregate demand is projected to slow
reasonably sharply, to 1.2% by the end of this year.
15
This is the Prime Minister's phrasing in her
speech on 17 January.
Yet there are clearly risks to both. If businesses share the view of financial markets, and in particular the
foreign exchange market, the risks around EU exit could persuade them to cut investment further this year. If
- who, as we've noted before, appear to have taken such uncertainties very
they side more with consumers
- they will respond more to today's favourable conditions than to any caution about the
much in their stride
longer-term future and instead raise investment spending.
14
All speeches are available online at www.bankofengland.co.uk/speeches
References
'Uncertainty and investment dynamics' The Review of Economic
Bloom N., Bond S. and J. Reenen, 2007,
Studies, 74 (2), pages 391-415
'Investment under Uncertainty',
Dixit A. and R. Pindyck, 1994, Princeton University Press
'Equilibrium Exchange Rates in Transition Economies:
Egert B., Halpern L. and R MacDonald, 2006,
Taking Stock of the Issues', Journal of Economic Surveys
'Exchnage rates and Foreign Direct Investment',
Goldberg L., 2007, Princeton Encyclopaedia of the World
Economy, Princeton University Press
'Policy uncertainty, trade and welfare: theory and evide