Whether the Policy Mix in the Brexit Process Is a Simple Accumulation of Short-Term Temporary Decisions or a Series of Long-Term Careful Considerations: A New Framework for Macroeconomic Policy Assessment

Abstract

Previous studies and policymaker remarks suggest that whether the policy mix in a great crisis or a big event is a simple accumulation of short-term temporary decisions or a series of long-term careful considerations could even lead the great crisis or the big event in completely different directions under government intervention. The UK-EU Membership Referendum in Jun-2016 which has officially kicked off the Brexit process and been considered as one of the biggest events in the world economy and politics makes the above theoretical and practical themes on policy mix return to the forefront amid concerns. This study first builds two diagram frameworks on the basis of improved Mundell Assignment Rule and modified Swan Model to help define the theoretical optimal policy path as the comparison standard for empirically assessing various types of policy mix in the Brexit process, subsequently the searching of the unique theoretical optimal policy path with the least distance from the actual evolution path driven by policy mix is converted into a classical primal-dual optimization problem, which can be solved through the collaboration of the GRG (abbreviation for generalized reduced gradient) nonlinear algorithm and the evolutionary algorithm. The assessment results can be generally described as only “expenditure-changing policies minus external balance related components of monetary policies” and “mix of expenditure-changing policies and expenditure-switching policies” during the Brexit process are assessed to be more like a series of long-term careful considerations, while fiscal policies, monetary policies, expenditure-changing policies (as mix of fiscal policies and monetary policies), expenditure-switching policies plus external balance related components of monetary policies, internal balance related overall policy mix, external balance related overall policy mix, and overall policy mix during the Brexit process could only be evaluated to be more like a simple accumulation of short-term temporary decisions. However, these assessment results are sensitive to specific rules set by specific scenarios, assessment results under either the scenario “limited-size backward step allowed” or the scenario “backward step allowed but punished” are significantly better than those under the above original scenario “only step in the target direction allowed”, while assessment results under the scenario “different target directions for different periods” are only slightly better than those under the above original scenario.