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The Canadian border and the US dollar: The impact of exchange rate changes on US retailers

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  • Zhe Chen
  • Michael B. Devereux
  • Beverly Lapham

Abstract

This paper provides a micro‐level investigation into the impact of changes in the US–Canada nominal exchange rate on retailers in US regions lying close to the US–Canada border. Using a large data set on product‐level retail prices and sales in the United States over a nine year period, we explore the links between changes in exchange rates, cross‐border travel and the price and quantity responses of US retailers. This allows us to assess the importance of geography and distance in affecting the pass‐through of exchange rate changes into prices and quantities at the level of the consumer. We develop a two‐stage theoretical model of cross‐border travel and industry equilibrium for retail sales at the border. Our empirical results accord well with the implications of the model. La frontière canadienne et le dollar américain : impact des changements dans les taux de change sur les détaillants aux États‐Unis. Ce texte présente les résultats d’une enquête micro‐économique sur l’impact des changements dans le taux de change nominal ÉU‐Canada sur les détaillants dans les régions des États‐Unis limitrophes à la frontière Canada‐ÉU. Utilisant une banque de données considérables sur les prix au détail et les ventes au niveau du produit pour une période de neuf ans, on explore les liens entre les changements dans les taux de change, les voyages outre‐frontières, et les réponses des quantités et des prix pour les détaillants des ÉU. Voilà qui permet de jauger l’importance des effets de la géographie et de la distance sur la transmission des changements dans le taux de change en changements de prix et de quantités au niveau des consommateurs. On développe un modèle théorique à deux étapes des voyages outre‐frontières et d‘équilibre au niveau industriel pour les ventes au détail à la frontière. Les résultats empiriques s’arriment bien aux implications du modèle.

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  • Zhe Chen & Michael B. Devereux & Beverly Lapham, 2017. "The Canadian border and the US dollar: The impact of exchange rate changes on US retailers," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 50(5), pages 1525-1555, December.
  • Handle: RePEc:wly:canjec:v:50:y:2017:i:5:p:1525-1555
    DOI: 10.1111/caje.12306
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    Cited by:

    1. Richard Friberg & Frode Steen & Simen A. Ulsaker, 2022. "Hump-Shaped Cross-Price Effects and the Extensive Margin in Cross-Border Shopping," American Economic Journal: Microeconomics, American Economic Association, vol. 14(2), pages 408-438, May.
    2. Kim, In Kyung & Lee, Yoon-Jin & Yoon, Young-Ro, 2020. "Floating Population and Demand for Movie Theaters in Metropolitan Cities," Hitotsubashi Journal of Economics, Hitotsubashi University, vol. 61(2), pages 140-169, December.
    3. Thomas M. Fullerton & Adam G. Walke, 2019. "Cross-Border Shopping and Employment Patterns in the Southwestern United States," Journal of International Commerce, Economics and Policy (JICEP), World Scientific Publishing Co. Pte. Ltd., vol. 10(03), pages 1-19, October.

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    JEL classification:

    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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