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สถาบันวิจัยเศรษฐกิจป๋วย อึ๊งภากรณ์
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ประกาศรับสมัครทุนสถาบันวิจัยเศรษฐกิจป๋วย อึ๊งภากรณ์ ประจำปี 2568 รอบที่ 2 (ประเภททั่วไป)
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ประกาศรับสมัครทุนสถาบันวิจัยเศรษฐกิจป๋วย อึ๊งภากรณ์ ประจำปี 2568 รอบที่ 2 (ประเภททั่วไป)
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9 August 2021
20211628467200000
No. 158

Exchange Rate Volatility and Cross–Border Travel: Theory and Empirics

Wisarut Suwanprasert

Abstract

I develop a search-theoretic model to study how consumers' search behavior responds to exchange rate volatility. The model offers two main predictions. First, the number of cross-border travelers is increasing in exchange rate volatility. Second, the elasticity of cross-border travel with respect to exchange rate volatility is increasing in transportation cost. I use monthly Canadian traveler data from 2005 to 2012 to test the model's predictions. The estimate suggests that when exchange rate volatility increases by one standard deviation, the number of same-day travelers increases by 1.6 percent. When exchange rate volatility is measured by implied volatilities, the estimates increase to 2.1–2.5 percent. When the data is restricted to the subperiod before the 2008 financial crisis, the estimated coefficients of exchange rate volatility and implied volatilities increase to 4 percent and 7.3–10.7 percent, respectively. This paper concludes that cross-border shopping behavior responds to both ex ante and ex post exchange rate volatilities.

Wisarut Suwanprasert
Wisarut Suwanprasert
Middle Tennessee State University
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JEL: F10F14F31
Tags: international price differencesexchange rateexchange rate volatilitycross-border shoppingimplied volatility
The views expressed in this workshop do not necessarily reflect the views of the Puey Ungphakorn Institute for Economic Research or the Bank of Thailand.
Wisarut Suwanprasert
Wisarut Suwanprasert
Middle Tennessee State University

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