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BREXIT Impact of the Macro-Economy under the UK CBR Macroeconomic Model

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<p style=”line-height:200%”><i>Introduction</i></p>
<p style=”text-indent:.5in;line-height:200%”>The June 2016 results of the referendum about the European Union membership caused a great impact towards the UK economy. Apart from the new plans and agreements on trade yet to be discovered, the Prime Minister&rsquo;s ruling that &lsquo;Brexit will remain to mean Brexit&rsquo; does not change the decision as it will pull them out of the single market. Apart from getting out of the single market, it will also not allow any further jurisdiction under the European Courts after the exit.&nbsp; Future trends in the market are forecasted by the CBR model that is based on data retrieved from the previous decades on the market behavior of the United Kingdom. Considering that, no country has ever left the European Union the case will be closely monitored to check on the economic and political effects of the move. The effects of the Brexit model will be both long-term and immediate effects (PATHMARAJAH). The long-term effects are the consequences faced after the single market pulling some of the incentives and subsidized prices, taxes, and tariffs set to the member countries. However, the expenditure on the trade will increase hence reducing the amount of money in circulation in the United Kingdom economy.</p>
<p style=”line-height:200%”><i>The CBR Macroeconomic Model</i></p>
<p style=”text-indent:.5in;line-height:200%”>The major challenge of the paper is the determination of the assessed assumptions that should be included in forecasts for the period 2017-2015. The CBR model uses assumptions from the examined situations and scenarios. The first step in tackling the model is the description of the United Kingdom economy and the key issues relating to the B model approach. The current economic growth rate in the United Kingdom is at an average of 2.5% per annum. The introduction of the Euro into the market in early 2000 caused a slowdown in the United States of America economy. The trend caused effects to the productivity puzzle in the market. The puzzle has no accepted agreement by the economists due to the sudden changes in the economy due to the inclusion of multiple countries with different products and different currency strengths. The trend was used to determine the economic status of the United States in 2008under the same model (ALLEN). The post-crisis conditions in the market slowed down the general market growth as a result of the impaired banking system. Austerity programs set by the government in the main economy did exerbarate the situation, but the major cause of the crisis was a lack of finances.</p>
<p style=”line-height:200%”><i>The Gross Domestic Product per Head at 2013 Prices (&pound;000)</i></p>
<p style=”line-height:200%”><img alt=”” height=”234″ src=”/wp-content/uploads/2019/10/order-123080-brexit-impact-of-the-macro-economy_1.jpg” width=”373″ /></p>
<p style=”line-height:200%”>The baseline used to determine the forecast of the Brexit scenario is towards the right of the blue vertical line and it is described below.</p>
<p style=”line-height:200%”><i>The Credit Super-Cycles, Consumption, and Borrowing</i></p>
<p style=”text-indent:.5in;line-height:200%”>Credit generation business cycles are the key characteristics of the model. Doing business without accessing credit facilities can lead to the lack of operating cash in the management of daily activities. The long-term and time-consuming projects should be granted credit facilities as they are assured of the income generation after completion.</p>
<p style=”line-height:200%”><i>The consumption function table</i></p>
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<p align=”center” style=”margin-bottom:0in;margin-bottom:.0001pt; text-align:center;line-height:200%”><b>The Dependent Variables: D (CV)</b></p>
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<p style=”margin-bottom:0in;margin-bottom:.0001pt;line-height: 200%”><b>The method used: The least Squares</b></p>
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<p style=”margin-bottom:0in;margin-bottom:.0001pt;line-height: 200%”><b>&nbsp;</b></p>
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<p style=”margin-bottom:0in;margin-bottom:.0001pt;line-height: 200%”><b>Sample period: 1975-2015</b></p>
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<p style=”margin-bottom:0in;margin-bottom:.0001pt;line-height: 200%”><b>&nbsp;</b></p>
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<p style=”margin-bottom:0in;margin-bottom:.0001pt;line-height: 200%”><b>Variables</b></p>
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<p style=”margin-bottom:0in;margin-bottom:.0001pt;line-height: 200%”><b>Coefficients</b></p>
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<p style=”margin-bottom:0in;margin-bottom:.0001pt;line-height: 200%”><b>The t-Statistics</b></p>
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<p style=”margin-bottom:0in;margin-bottom:.0001pt;line-height: 200%”>The Constant</p>
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<p style=”margin-bottom:0in;margin-bottom:.0001pt;line-height: 200%”>17653</p>
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<p style=”margin-bottom:0in;margin-bottom:.0001pt;line-height: 200%”>1.7</p>
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<p style=”margin-bottom:0in;margin-bottom:.0001pt;line-height: 200%”>CV</p>
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<p style=”margin-bottom:0in;margin-bottom:.0001pt;line-height: 200%”>-0.4</p>
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<p style=”margin-bottom:0in;margin-bottom:.0001pt;line-height: 200%”>-8.5</p>
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<p style=”margin-bottom:0in;margin-bottom:.0001pt;line-height: 200%”>Yd/CP</p>
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<p style=”margin-bottom:0in;margin-bottom:.0001pt;line-height: 200%”>0.3</p>
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<p style=”margin-bottom:0in;margin-bottom:.0001pt;line-height: 200%”>7.5</p>
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<p style=”margin-bottom:0in;margin-bottom:.0001pt;line-height: 200%”>FASN/CP</p>
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<p style=”margin-bottom:0in;margin-bottom:.0001pt;line-height: 200%”>0.01</p>
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<p style=”margin-bottom:0in;margin-bottom:.0001pt;line-height: 200%”>3</p>
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<p style=”margin-bottom:0in;margin-bottom:.0001pt;line-height: 200%”>DEBT_ST/CP</p>
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<p style=”margin-bottom:0in;margin-bottom:.0001pt;line-height: 200%”>-0.2</p>
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<p style=”margin-bottom:0in;margin-bottom:.0001pt;line-height: 200%”>-3</p>
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<p style=”margin-bottom:0in;margin-bottom:.0001pt;line-height: 200%”>Loans on housing/CP</p>
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<p style=”margin-bottom:0in;margin-bottom:.0001pt;line-height: 200%”>0.3</p>
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<p style=”margin-bottom:0in;margin-bottom:.0001pt;line-height: 200%”>9.25</p>
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<p style=”margin-bottom:0in;margin-bottom:.0001pt;line-height: 200%”>(YD/CP)D</p>
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<p style=”margin-bottom:0in;margin-bottom:.0001pt;line-height: 200%”>0.3</p>
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<p style=”margin-bottom:0in;margin-bottom:.0001pt;line-height: 200%”>5.25</p>
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<p style=”margin-bottom:0in;margin-bottom:.0001pt;line-height: 200%”>(FTSE/CP)D</p>
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<p style=”margin-bottom:0in;margin-bottom:.0001pt;line-height: 200%”>1190</p>
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<p style=”margin-bottom:0in;margin-bottom:.0001pt;line-height: 200%”>5.35</p>
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<p style=”margin-bottom:0in;margin-bottom:.0001pt;line-height: 200%”>(HPI)DLOG</p>
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<p style=”margin-bottom:0in;margin-bottom:.0001pt;line-height: 200%”>64130</p>
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<p style=”margin-bottom:0in;margin-bottom:.0001pt;line-height: 200%”>5</p>
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<p style=”margin-bottom:0in;margin-bottom:.0001pt;line-height: 200%”>R-Squared</p>
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<p style=”margin-bottom:0in;margin-bottom:.0001pt;line-height: 200%”>0.955</p>
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<p style=”margin-bottom:0in;margin-bottom:.0001pt;line-height: 200%”>&nbsp;</p>
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<p style=”margin-bottom:0in;margin-bottom:.0001pt;line-height: 200%”>F-Statistic</p>
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<p style=”margin-bottom:0in;margin-bottom:.0001pt;line-height: 200%”>43.78</p>
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<p style=”margin-bottom:0in;margin-bottom:.0001pt;line-height: 200%”>2.19</p>
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<p style=”line-height:200%”>&nbsp;</p>
<p style=”line-height:200%”><b><i>Key:</i></b></p>
<p style=”line-height:200%”><i>CV</i> – consumption of the constant prices</p>
<p style=”line-height:200%”><i>YD</i> – the available income to spend</p>
<p style=”line-height:200%”><i>CP</i> – deflector that is consumable</p>
<p style=”line-height:200%”><i>FASN</i> – the financial assets</p>
<p style=”line-height:200%”><i>DEBT_ST</i> – household debts that are for a short period</p>
<p style=”line-height:200%”><i>FATSE</i> – all of the share indexes for the stock exchange market</p>
<p style=”line-height:200%”><i>HPI</i> – the price index for the houses</p>
<p style=”text-indent:.5in;line-height:200%”>All the variables were used as the current prices during the period. The consumption purchased per house was highly dependent on the annual borrowings. The mortgages were not included in the results. New dwellings amounted to 25% of the borrowings were as the existing purchases were 75% of the loans. The loans were held by banks to the people who were selling houses. However, the proportions of the amount held in banks were used to offer financial assistance for the purchase of the houses.</p>
<p>&nbsp;</p>
<p style=”line-height:200%”><i>Assumptions on Brexit</i></p>
<p>&nbsp;</p>
<p style=”text-indent:.5in;line-height:200%”>The future trade agreements of the United Kingdom cannot be forecasted hence making I difficult to assume on the impact of Brexit. The uncertainty of the future regarding the economic status and arrangements after Brexit can only be managed when experienced. However, the best way is to get assumptions based on the current scenarios. Since the campaign to leave the EU, some of the consequences have already started facing the United Kingdom.</p>
<p style=”line-height:200%”><i>The Short-Term Impacts of Brexit</i></p>
<p style=”text-indent:.5in;line-height:200%”>The future is always uncertain and no forecast cal=n exactly tell what the effects of Brexit can be in the United Kingdom. However, from the research done, the short-term and long-term impacts were recorded and put down in a manner that predicts the future of the United Kingdom and the European Union. The major losses that are reflected ins the decrease in the gross domestic product (GDP) because the United Kingdom will quit the single market. After the quiting, the UK will be working with the WTO rules. The gradual decrease in the gross domestic product (GDP) of the United Kingdom is estimated at 1% during the first year of exit, 2-4% in the second year, 4% after a period of three years, and 4-6% in the first 5 years. According to the reports from the Treasury, the gross domestic product will reduce by a range of between 4% and 6%.</p>
<p>&nbsp;</p>
<p style=”line-height:200%”><i>The Short-Term Study Effects on Gross Domestic Product Due to Brexit</i></p>
<p>&nbsp;</p>
<p style=”line-height:200%”><img alt=”” height=”159″ id=”Picture 1″ src=”/wp-content/uploads/2019/10/order-123080-brexit-impact-of-the-macro-economy_2.jpg” width=”492″ /></p>
<p style=”line-height:200%”><i>Treasury Approximates of Short-Term Effects of Brexit</i></p>
<p style=”line-height:200%”><img alt=”” height=”225″ id=”Picture 4″ src=”/wp-content/uploads/2019/10/order-123080-brexit-impact-of-the-macro-economy_3.jpg” width=”511″ /></p>
<p style=”line-height:200%”><i>The Long-Term Effects of Brexit</i></p>
<p style=”text-indent:.5in;line-height:200%”>The aftermath trade agreements made by the United Kingdom after leaving the European Union will greatly determine the impact to the economy. It is expected that the United Kingdom will enter the Eurpean Economic Area (EEA) seeking for negotiations with the Eurpean Union for trade agreements. Should the agreement fail, it is expected that the alternative for the United Kingdom will be joining the World Trade Organization (WTO) and follow the set rules.</p>
<p style=”text-indent:.5in;line-height:200%”>Some of the worst case scenarios will include the drop of the gross domestic product by over 7% in the next fourteen years after the exit from the European Union. The productivity effects will be experienced as a result of the kick out from the single market. The experts and imports of the United Kingdom will remain to be stable, according to the&nbsp; market forces due to the stability of them as the oil commodities. However,the assumption does not represent the value of exports well as it an be used to explain the stability of imports.</p>
<p style=”line-height:200%”><i>The Forecasted Economic Effect of Brexit by 2030</i></p>
<p style=”line-height:200%”><img alt=”” height=”549″ id=”Picture 7″ src=”/wp-content/uploads/2019/10/order-123080-brexit-impact-of-the-macro-economy_4.jpg” width=”541″ /></p>
<p>&nbsp;</p>
<p style=”line-height:200%”><i>The Service Sector Trade</i></p>
<p>&nbsp;</p>
<p style=”text-indent:.5in;line-height:200%”>The effects of the European Union will be evaluated o the services offered in trade among the member countries. However, it is always a positive effect created towards the member countries. The diversions in trade are a mere ideologies that would not work at the member countries&#39; trade within the set standards. But when a member state pulls out from the union, some of the privileges as a member are withdrawn and the fee and prices that apply to non-member countries will take effect. Therefore, the pulling out will imply that the advantages of being a member trading within the set territory will not be enjoyed hence creating tough condition for trade within the region. The tariffs and taxes that were waved for being a member will be withdrawn and start paying them as required. The payment of such fees and taxes without enjoying incentives will raise the cost of living hence affect the economy of the United Kingdom to go down.</p>
<p style=”line-height:200%”><i>The Impact of Brexit on Productivity</i></p>
<p style=”text-indent:.5in;line-height:200%”>Based on previous research by scholars, the widening of the economy and productivity of trade and FDI is through joining trade unions. However, most of the studies are gravity model based methodology. The unions bring together countries that are emerging in their economies and need hep to rise to the heights of developed countries. For example, the union is comprised of up to 200 member countries. The friendly tariffs that allow the trade by multi-national companies create a conducive environment for emerging economies to rise and operate in the international market (Smith, Richard D., et al.). The unity created by the merging of countries improves productivity among the countries and promotes the items reduced. But, for a developed country like the United Kingdom will not be greatly affected by leaving a single market that has low tariffs and customs unions.</p>
<p style=”text-indent:.5in;line-height:200%”>Studies have revealed that foreign companies perform well than the local companies. The productivity of foreign companies is always higher than the local companies due to the struggle to make the maximum use of the opportunity, unlike the local companies that do not strive due to the benefits provided by the local government in the protection of local investors and local companies. The business opportunities that were gained from being a member of the European Union will not be achieved being out of the union. Exiting will create tough conditions in the United Kingdom and create barriers to the entry of the market.</p>
<p style=”line-height:200%”><i>The United Kingdom Direct Exports to the European Union</i></p>
<p style=”text-indent:.5in;line-height:200%”>In regards to the exports, two things will be much affected by the Brexit. The first key interest is the trade and the second is productivity. The export of goods and services to the European Union will be affected among the 298 member countries. The policies and tariffs on trade will be raised hence reducing the revenue collection in profit. The performance of the U economy will go down in terms of the gross domestic product (GDP). The productivity of the United Kingdom turned in the 1973 economic post-war during the accession. Pulling out will be of great impact to the economy due to lack of the privileges offered to member states. The exports to the European Union from the United Kingdom will decline and lead to a crisis in the economy (Dhingra, Swati, et al.). When the union offers are no longer enjoyed, the member states will avoid associating with the pulled out country in fear of pulling more countries out. Hence, the exports will decline leading to low income from the single market and hard times in the economy experienced. The graph below illustrates the decline of United Kingdom exports to the 8 member countries of the European Union.</p>
<p style=”line-height:200%”><i>The United Kingdom Exports to the European Union States (&pound;2013 year prices)</i></p>
<p style=”line-height:200%”><img alt=”” height=”314″ id=”Picture 10″ src=”/wp-content/uploads/2019/10/order-123080-brexit-impact-of-the-macro-economy_5.jpg” width=”401″ /></p>
<p style=”text-indent:.5in;line-height:200%”>Before the move to pull out of the European Union, the United Kingdom targeted the non-member states to help fill the gap that will be created by the member states in avoiding trading with the UK. However, the market grew at a very slow pace unlike anticipated. Despite the move to open trade opportunities with non-member states, the time taken to create goodwill in the market and convince the outside world will be very costly as they fear the country from pulling out of business as the case from the European Union. The shift in the market strategy is illustrated below.</p>
<p>&nbsp;</p>
<p style=”line-height:200%”><i>The United Kingdom Exports to the European Union States and Non-European Union States (&pound;2013 year prices)</i></p>
<p>&nbsp;</p>
<p style=”line-height:200%”><img alt=”” height=”318″ id=”Picture 13″ src=”/wp-content/uploads/2019/10/order-123080-brexit-impact-of-the-macro-economy_6.jpg” width=”424″ /></p>
<p style=”line-height:200%”><i>Conclusion</i></p>
<p style=”text-indent:.5in;line-height:200%”>Trade unions help in establishing a market for member states and subsidizing tariffs. Apart from the less fees charged to member states, the goods produced have a guarantee of getting market due to the promotion of trade among the nations. The move will greatly affect the gross domestic product of the United Kingdom and the economy as a whole. However, a clear strategy need to be improvised that will help the UK to penetrate to the European Union non-member states. Despite the loss of clients from the EU, the other countries who are not members of the EU have the same potential of being customers and worth doing business. An expansion of the market search to the rest of the world is open and would yield results when a better strategy is laid out.</p>
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<p style=”line-height:200%”><i>Works Cited</i></p>
<p>&nbsp;</p>
<p style=”line-height:200%”>ALLEN, GREEN D. A. V. I. D. <i>Brexit</i>. S.l.: OXFORD UNIV PRESS, 2017.</p>
<p style=”margin-left:.5in;text-indent:-.5in;line-height:200%”>Dhingra, Swati, et al. &quot;The consequences of Brexit for UK trade and living standards.&quot; (2016).</p>
<p style=”margin-left:.5in;text-indent:-.5in;line-height:200%”>Dhingra, Swati, et al. &quot;The impact of Brexit on foreign investment in the UK.&quot; <i>BREXIT 2016</i> (2016): 24.</p>
<p style=”line-height:200%”>PATHMARAJAH, STEPHEN. <i>Brexit</i>. S.l.: NEW GENERATION PUBLISHING, 2016.</p>
<p style=”margin-left:.5in;text-indent:-.5in;line-height:200%”>Smith, Richard D., et al. &quot;The economy-wide impact of pandemic influenza on the UK: a computable general equilibrium modelling experiment.&quot; <i>Bmj</i> 339 (2009): b4571.</p>

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