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<p>In this paper, we study the impact of exchange rate movements on aggregate retail sector sales and prices in a small open economy, and quantify the role of retail imports in transmitting exchange rate changes to these aggregate outcomes. We develop a model where exchange rate appreciations lower the cost of imported goods, but also lead to more cross-border shopping by consumers; hence, the net impact on aggregate retail sales and prices is ambiguous. We then estimate the model-implied exchange rate elasticities of aggregate retail sales and prices using firm- and industry-level data from Canada. Our results indicate a deflationary effect of appreciations on retail prices and a near zero effect on retail sales partly due to counteracting forces. From 2002 to 2012, the CAD appreciated by 57%, which, according to our model-based analysis, led to a 8.15% reduction in Canadian retail goods prices. We also find that the estimated elasticities of aggregate retail sales and prices increased over this period, driven in part by import growth from China.</p>

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Exchange rates, retailers, and importing: theory and firm-level evidence

  • 期刊论文

  • 发表日期：

    2026年6月15日

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  • Patrick Alexander,
  • Alex Chernoff

摘要

In this paper, we study the impact of exchange rate movements on aggregate retail sector sales and prices in a small open economy, and quantify the role of retail imports in transmitting exchange rate changes to these aggregate outcomes. We develop a model where exchange rate appreciations lower the cost of imported goods, but also lead to more cross-border shopping by consumers; hence, the net impact on aggregate retail sales and prices is ambiguous. We then estimate the model-implied exchange rate elasticities of aggregate retail sales and prices using firm- and industry-level data from Canada. Our results indicate a deflationary effect of appreciations on retail prices and a near zero effect on retail sales partly due to counteracting forces. From 2002 to 2012, the CAD appreciated by 57%, which, according to our model-based analysis, led to a 8.15% reduction in Canadian retail goods prices. We also find that the estimated elasticities of aggregate retail sales and prices increased over this period, driven in part by import growth from China.