Brexit Sterling panic rescues ‘Remain’

Consider the following scenario.

First, for reasons set out in my previous post, the news that Boris Johnson favours Out causes a sell-off of Sterling, and a credit downgrade for the UK.

Second, the commentariat explains why this happened, concluding – as I suggested in my previous post – that it’s because markets take the macroeconomic consensus view that Brexit would be bad for the UK, and, regardless, entails a number of severe event risks.

Third, voters slowly appreciate this, and polls tilt decisively towards Remain, compressing the uncertainties in Sterling assets, lowering the probability of Brexit, and Sterling recovers.

The panic and uncertainty are not themselves good, but ultimately it saves the Remain campaign, as prices reveal the risks that Boris seeks to downplay in his Telegraph column, and the consensus central-case view that Brexit would be a mistake.

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3 Responses to Brexit Sterling panic rescues ‘Remain’

  1. James Alexander says:

    Gosh. You sound just like a Market Monetarist trying to interpret central bankers weird and wacky actions and inactions.

  2. The operative word here is “slowly.”

    How quickly do UK voters interpret prices and factor them into their political decision-making? How quickly do they interpret the international price of their currency in particular? Do they even think about prices in a consistent way (politically)? What is the most relevant historical precedent?

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