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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 USCanada nominal exchange rate on retailers in US regions lying close to the USCanada 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.

Suggested Citation

  • 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, Canadian Economics Association, vol. 50(5), pages 1525-1555, December.
  • Handle: RePEc:cje:issued:v:50:y:2017:i:5:p:1525-1555
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    JEL classification:

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

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