The Impact of Real Exchange Rate Movements on Service Sector Firms. Jen Baggs School of Business, University of Victoria Eugene Beaulieu Department of Economics, University of Calgary Loretta Fung Department of Economics, University of Alberta. Motivation. Important Question:
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Jen BaggsSchool of Business, University of VictoriaEugene BeaulieuDepartment of Economics, University of CalgaryLoretta FungDepartment of Economics, University of Alberta
How do large real exchange rate movements affect service sector firms?
Deardorff et al, 2001, Hung and Viana, 1995, and Freund and Weinhold, 2002
Trefler (2004), Baldwin and Gu (2003, 2004), Baggs (2005), Baggs and Brander (2006), LaRochelle-Côté (2007), Baggs et al (2008).
Derived from a combination of Fung’s (2008) and Melitz and Ottaviano’s (forthcoming) model:
Home currency depreciations have opposite effects.
Constructing panels of survivors and exiters:
Baggs’ (2005) criteria:
Prediction: Appreciations lower profits and induce firms to allow debt and leverage to rise.