Working Paper: NBER ID: w8558
Authors: Jeffrey R. Campbell; Beverly Lapham
Abstract: Consumers living near the U.S.-Canada border can shift their expenditures between the two countries, so real exchange rate fluctuations can act as demand shocks to border areas' retail trade industries. Using annual county-level data, we estimate the effects of real exchange rates on the number of establishments and their average payroll in border counties for four retail industries. In three of the four industries we consider, the number of operating establishments responds either contemporaneously or with a lag of one year to real exchange rate movements. For these industries, the response of retailers' average size is less pronounced. The rapid response of net entry is inconsistent with any model of persistent deviations from purchasing power parity that depends on retailers' costs of changing nominal prices.
Keywords: No keywords provided
JEL Codes: F4; E3; L8
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| real exchange rate fluctuations (F31) | number of operating establishments (L81) |
| real exchange rate fluctuations (F31) | net entry into retail markets (L81) |
| real exchange rate fluctuations (F31) | retailers' average size (L81) |