IDEAS home Printed from https://ideas.repec.org/p/bca/bocawp/19-34.html
   My bibliography  Save this paper

Exchange Rates, Retailers, and Importing: Theory and Firm-Level Evidence

Author

Listed:
  • Alex Chernoff
  • Patrick Alexander

Abstract

We develop a model with firm heterogeneity in importing and cross-border shopping among consumers. Exchange-rate appreciations lower the cost of imported goods, but also lead to more cross-border shopping; hence, the net impact on aggregate retail prices and sales is ambiguous. Using Canadian firm-level data from 2002 to 2012, we find empirical support for several predictions of the model. We then estimate the model-implied exchange-rate elasticities of aggregate retail prices and sales. Our benchmark results indicate a deflationary effect of appreciations on retail prices and a small positive effect on sales. From 2002 to 2012, the Canadian exchange rate appreciated by 57%, which, according to our model, led to a 6.5% reduction in the retail price index. We also find that the estimated elasticities of aggregate retail prices and sales grew over this period, driven by import growth from China. This suggests that the transmission of exchange-rate movements to prices has grown since the early 2000s, which has consequences for the role of Canada’s flexible exchange rate regime in supporting inflation stability.

Suggested Citation

  • Alex Chernoff & Patrick Alexander, 2019. "Exchange Rates, Retailers, and Importing: Theory and Firm-Level Evidence," Staff Working Papers 19-34, Bank of Canada.
    • Handle: RePEc:bca:bocawp:19-34
    as

    Download full text from publisher

    File URL: https://www.bankofcanada.ca/wp-content/uploads/2019/09/swp2019-34.pdf
    File Function: Full text
    Download Restriction: no
    File URL: https://www.bankofcanada.ca/wp-content/uploads/2019/09/swp2019-34-Online-Appendix.pdf
    File Function: Appendix
    Download Restriction: no
    ---><---

    More about this item

    Keywords

    Exchange rates; International topics; Service Sector;
    All these keywords.

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bca:bocawp:19-34. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/bocgvca.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.