The aim of this paper is to analyse the long-term implications of leaving the EU for the UK economy. To do this, we consider three main channels by which the UK economy could be affected in the long run: 1) Reductions in trade with EU countries and a modest increase in tariff barriers.2) A reduction in foreign direct investment (FDI), particularly affecting services FDI.3) A reduction in the UK's net fiscal contribution to the EU.We input these effects of leaving the EU into NiGEM, the National Institute Global Econometric Model, a multicountry economic forecasting model. NiGEM has been developed at NIESR over the past three decades and is funded by subscriptions from international institutions, central banks and finance ministries from around the world, as well as some private sector institutions. Both the OECD and HM Treasury have also chosen to use NiGEM to conduct their analysis of the economic impact of leaving the EU. This is not surprising, as NiGEM's explicit trade linkages make it particularly well-suited to modelling the impact on the UK economy of shifts in trade policy.This article presents our estimates of the long-run impact of leaving the EU over the next fifteen years, not only on GDP, but on consumption, real wages, unemployment, and a range of other (endogenously determined) variables. We find that by 2030, GDP is projected to be between 1.5 per cent and 3.7 per cent lower than in the baseline forecast in which the UK remains in the EU. Real wages fall somewhat more, by between 2.2 per cent and 6.3 per cent. Consumption is also hit somewhat harder than GDP, falling by between 2.4 and 5.4 per cent. Real wages and consumption decline more than GDP in the long term due to a long-term deterioration in the terms of trade, coupled with a shift towards savings. Table 14 compares our estimated long-run reductions in GDP to those of three other prominent studies published by the OECD, the Centre for Economic Performance (CEP) at the LSE and HM Treasury. While the studies assume broadly similar reductions in trade and FDI, as well as similar reductions in the UK's net contributions to the EU, the range of estimated impacts on GDP relative to the 2030 baseline is considerably larger. We summarise these results by reporting the estimated reduction in GDP for each percentage point reduction in total trade. In the CEP analysis, GDP is reduced by 0.5 per cent to 0.75 per cent for each 1 per cent reduction in total trade, while in the OECD and HM Treasury studies, the reduction is about 0.3 per cent to 0.4 per cent of GDP for each 1 per cent decrease in total trade. In our analysis, GDP is reduced by 0.1 per cent for each 1 per cent reduction in trade, so that our estimates can be seen as more conservative.Our modelling strategy is to focus on a small number of the clearest and most well-understood potential impacts on the EU economy of leaving the EU in our core scenarios. As a result, it is not surprising that our estimated reductions in GDP are smaller than those of by guest on June 4, 2016 ner.sagepub.com D...

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for helpful comments on earlier drafts and are indebted to Sveinbjörn Blöndal and Anne Épaulard for comments and suggestions. The views expressed in this article are those of the authors and do not necessarily reflect those of the OECD or the governments of its member countries. This article looks at various aspects of fiscal consolidation in 18 OECD economies.The prospects for fiscal consolidation depend upon the problems a country may face with its debt stock, the political will to deal with these problems and on the costs of consolidation. These costs are a function of the impacts of fiscal policy on the economy, which is the focus of this study. The analysis is based on a series of simulations using the National Institute Global Econometric Model, NiGEM. Fiscal multipliers differ across countries because the structure and behaviour of economies differ. They also differ within countries, depending on factors such as the fiscal instrument implemented, the policy response to fiscal innovations, and expectation formation by economic agents. The purpose of this study is to allow an assessment of the likely impact on the economy and on the fiscal position of consolidation programmes. We decompose the key factors that determine the size of the multiplier by changing them one at a time. Even under a specified set of assumptions, the outturn for the budget balance retains a high degree of uncertainty. We illustrate this uncertainty by calibrating probability bounds around projected debt profiles. This can allow an assessment of the probability of achieving specified fiscal targets, such as those set out in the European Union's new Fiscal Compact. JEL classification codes: E17; E37; E62Key words: Large scale structural macro models; fiscal multipliers; rational expectations; budget consolidation in the OECD * 102 where e t is the bilateral exchange rate at time t (defined as domestic currency per unit of foreign currency), int t is the short-term nominal interest rate at home set in line with a policy rule, int t * is the interest rate abroad and rp t is the exchange rate risk premium.

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Our forecast, published in the UK chapter of this Review, is conditioned on the assumption that the result of the 23 June referendum is a vote to remain in the EU. The discussion of the economic impact in the first half of the year, and the accompanying uncertainty due to the very act of having the vote, is discussed in the UK chapter in this Review.However, there exists a significant possibility of a vote to leave the EU. The future is, by definition, uncertain and we normally represent this with a distribution of potential outcomes around our modal path for the economy. The referendum presents a particular instance where the future may be genuinely considered bi-modal, with two distinct paths. The outcome of the referendum will determine which of these future paths the UK economy takes.This note presents a simulation exercise designed to give a counterfactual of a world in which the UK votes to leave the EU. We discuss the short-run developments that are most likely to affect the UK economy in the immediate aftermath of a leave vote. We do this by introducing a range of shocks to our global econometric model designed to capture the effects of the UK leaving the EU. These shocks are layered together with a series of more long-run structural changes which are discussed by Ebell and Warren, in this Review.Focusing on the near-term implications, our analysis suggests that the level of GDP in 2017 will be 1 per cent lower than our baseline forecast presented in the UK section of this Review. By 2018 this loss of output widens to 2.3 per cent. Heightened risk and uncertainty will cause sterling to depreciate by around 20 per cent immediately following the referendum, which will result in an intense bout of inflationary pressure. Meanwhile, the same uncertainty induces a tightening of credit conditions and a fall in domestic demand as consumption and investment fall relative to the counterfactual of a vote to remain.We begin by detailing the process by which the UK would negotiate exiting the EU followed by a comprehensive exposition of the shocks that form the core of our shortrun analysis. We then conclude with the quantitative implications of our simulation exercise, macroeconomic policy responses and a discussion of the transition to the longer run, which is discussed in detail in Ebell and Warren, in this Review.