IDEAS home Printed from https://ideas.repec.org/a/cje/issued/v50y2017i5p1525-1555.html
   My bibliography  Save this article

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

Author

Listed:
  • 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
    DOI: 10.1111/caje.12306
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/caje.12306
    Download Restriction: access restricted to subscribers
    File URL: https://libkey.io/10.1111/caje.12306?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Christian Broda & David E. Weinstein, 2008. "Understanding International Price Differences Using Barcode Data," NBER Working Papers 14017, National Bureau of Economic Research, Inc.
    2. Michael B. Devereux, 2009. "Much Appreciated? The Rise of the Canadian Dollar," Review of Economic Analysis, Digital Initiatives at the University of Waterloo Library, vol. 1(1), pages 1-33, September.
    3. Engel, Charles & Rogers, John H, 1996. "How Wide Is the Border?," American Economic Review, American Economic Association, vol. 86(5), pages 1112-1125, December.
    4. Gita Gopinath & Pierre-Olivier Gourinchas & Chang-Tai Hsieh & Nicholas Li, 2011. "International Prices, Costs, and Markup Differences," American Economic Review, American Economic Association, vol. 101(6), pages 2450-2486, October.
    5. Oleg Itskhoki & Dmitry Mukhin, 2021. "Exchange Rate Disconnect in General Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 129(8), pages 2183-2232.
    6. John F. Helliwell & Geneviève Verdier, 2001. "Measuring internal trade distances: a new method applied to estimate provincial border effects in Canada," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 34(4), pages 1024-1041, November.
    7. Charles Engel, 1999. "Accounting for U.S. Real Exchange Rate Changes," Journal of Political Economy, University of Chicago Press, vol. 107(3), pages 507-538, June.
    8. Baggs, Jen & Fung, Loretta & Lapham, Beverly, 2018. "Exchange rates, cross-border travel, and retailers: Theory and empirics," Journal of International Economics, Elsevier, vol. 115(C), pages 59-79.
    9. Bouakez, Hafedh & Rebei, Nooman, 2008. "Has exchange rate pass-through really declined? Evidence from Canada," Journal of International Economics, Elsevier, vol. 75(2), pages 249-267, July.
    10. Dornbusch, Rudiger & Fischer, Stanley & Samuelson, Paul A, 1977. "Comparative Advantage, Trade, and Payments in a Ricardian Model with a Continuum of Goods," American Economic Review, American Economic Association, vol. 67(5), pages 823-839, December.
    11. Jeannine Bailliu & Wei Dong & John Murray, 2010. "Has Exchange Rate Pass-Through Really Declined? Some Recent Insights from the Literature," Bank of Canada Review, Bank of Canada, vol. 2010(Autumn), pages 1-8.
    12. Jeffrey R. Campbell & Beverly Lapham, 2004. "Real Exchange Rate Fluctuations and the Dynamics of Retail Trade Industries on the U. S.-Canada Border," American Economic Review, American Economic Association, vol. 94(4), pages 1194-1206, September.
    13. Devereux, Michael B. & Dong, Wei & Tomlin, Ben, 2017. "Importers and exporters in exchange rate pass-through and currency invoicing," Journal of International Economics, Elsevier, vol. 105(C), pages 187-204.
    14. Maurice Obstfeld & Kenneth Rogoff, 2001. "The Six Major Puzzles in International Macroeconomics: Is There a Common Cause?," NBER Chapters, in: NBER Macroeconomics Annual 2000, Volume 15, pages 339-412, National Bureau of Economic Research, Inc.
    15. Yuriy Gorodnichenko & Linda L. Tesar, 2009. "Border Effect or Country Effect? Seattle May Not Be So Far from Vancouver After All," American Economic Journal: Macroeconomics, American Economic Association, vol. 1(1), pages 219-241, January.
    16. Jen Baggs & Eugene Beaulieu & Loretta Fung & Beverly Lapham, 2016. "Firm Dynamics in Retail Trade: The Response of Canadian Retailers to Exchange Rate Shocks," Review of International Economics, Wiley Blackwell, vol. 24(3), pages 635-666, August.
    17. Laurence Savoie-Chabot & Mikael Khan, 2015. "Exchange Rate Pass-Through to Consumer Prices: Theory and Recent Evidence," Discussion Papers 15-9, Bank of Canada.
    18. Gopinath, G. & Helpman, . & Rogoff, K. (ed.), 2014. "Handbook of International Economics," Handbook of International Economics, Elsevier, edition 1, volume 4, number 4.
    19. Ferris, J. Stephen, 2000. "The Determinants of Cross Border Shopping: Implications for Tax Revenues and Institutional Change," National Tax Journal, National Tax Association, vol. 53(n. 4), pages 801-24, December.
    20. Ferris, J. Stephen, 2000. "The Determinants of Cross Border Shopping: Implications for Tax Revenues and Institutional Change," National Tax Journal, National Tax Association;National Tax Journal, vol. 53(4), pages 801-824, December.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    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.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Baggs, Jen & Fung, Loretta & Lapham, Beverly, 2018. "Exchange rates, cross-border travel, and retailers: Theory and empirics," Journal of International Economics, Elsevier, vol. 115(C), pages 59-79.
    2. Head, Keith & , & Tappata, Mariano, 2012. "Consumer Arbitrage Across a Porous Border," CEPR Discussion Papers 8730, C.E.P.R. Discussion Papers.
    3. Kei-Mu Yi, 2010. "Can Multistage Production Explain the Home Bias in Trade?," American Economic Review, American Economic Association, vol. 100(1), pages 364-393, March.
    4. Burstein, Ariel & Gopinath, Gita, 2014. "International Prices and Exchange Rates," Handbook of International Economics, in: Gopinath, G. & Helpman, . & Rogoff, K. (ed.), Handbook of International Economics, edition 1, volume 4, chapter 0, pages 391-451, Elsevier.
    5. Roberto Rigobon & Brent Neiman & Alberto Cavallo, 2013. "Product Introductions, Currency Unions, and the Real Exchange Rate," 2013 Meeting Papers 1357, Society for Economic Dynamics.
    6. Fernando Borraz & Alberto Cavallo & Roberto Rigobon & Leandro Zipitria, 2016. "Distance and Political Boundaries: Estimating Border Effects under Inequality Constraints," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 21(1), pages 3-35, January.
    7. Chahrour, Ryan & Stevens, Luminita, 2020. "Price dispersion and the border effect," Journal of Monetary Economics, Elsevier, vol. 116(C), pages 135-146.
    8. Messner, Teresa & Rumler, Fabio & Strasser, Georg, 2022. "Cross-country price and inflation dispersion: Retail network or national border," Single Market Economics Papers WP2022/11, Directorate-General for Internal Market, Industry, Entrepreneurship and SMEs (European Commission), Chief Economist Team.
    9. Boivin, Jean & Clark, Robert & Vincent, Nicolas, 2012. "Virtual borders," Journal of International Economics, Elsevier, vol. 86(2), pages 327-335.
    10. Beck, Günter W. & Kotz, Hans-Helmut & Zabelina, Natalia, 2016. "Prices and consumer purchasing preferences at the border: Evidence from a multi-country household scanner data set," CFS Working Paper Series 536, Center for Financial Studies (CFS).
    11. Mario J. Crucini & Christopher I. Telmer, 2012. "Microeconomic Sources of Real Exchange Rate Variability," NBER Working Papers 17978, National Bureau of Economic Research, Inc.
    12. Mario Crucini & Christopher Telmer, 2020. "Microeconomic Sources of Real Exchange Rate Variation," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 38, pages 22-40, October.
    13. 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.
    14. Mamello A Nchake & Lawrence Edwards & Tresor N Kaya, 2019. "The Size of the Border and Product Market Integration Between Lesotho and South Africa: A Production–Consumption Approach," Journal of African Economies, Centre for the Study of African Economies, vol. 28(1), pages 70-88.
    15. Jacint Balaguer & Jordi Ripollés, 2018. "Revisiting the importance of border effect in sub‐national regions. Evidence from a quasi‐experimental design," Papers in Regional Science, Wiley Blackwell, vol. 97(4), pages 1113-1130, November.
    16. Alberto Cavallo & Brent Neiman & Roberto Rigobon, 2014. "Currency Unions, Product Introductions, and the Real Exchange Rate," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 129(2), pages 529-595.
    17. Beck, Guenter W. & Kotz, Hans-Helmut & Zabelina, Natalia, 2020. "Price gaps at the border: Evidence from multi-country household scanner data," Journal of International Economics, Elsevier, vol. 127(C).
    18. Dvir, Eyal & Strasser, Georg, 2018. "Does marketing widen borders? Cross-country price dispersion in the European car market," Journal of International Economics, Elsevier, vol. 112(C), pages 134-149.
    19. A. Kerem Cosar & Paul L. E. Grieco & Felix Tintelnot, 2015. "Borders, Geography, and Oligopoly: Evidence from the Wind Turbine Industry," The Review of Economics and Statistics, MIT Press, vol. 97(3), pages 623-637, July.
    20. Bruno Versailles, 2012. "Market Integration and Border Effects in Eastern Africa," Economics Series Working Papers WPS/2012-01, University of Oxford, Department of Economics.

    More about this item

    JEL classification:

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

    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:cje:issued:v:50:y:2017:i:5:p:1525-1555. 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.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with 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: Prof. Werner Antweiler (email available below). General contact details of provider: https://edirc.repec.org/data/ceaaaea.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.