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					Canadian Dollar and the
  Economy of Buffalo



       a very basic look
       October 25, 2009
         Current Research Agenda

“Sales Tax Compliance on eBay,” (with James Alm of Georgia State University)


                   “Insertion Fees and their Role on eBay”


 “Surface defects and their role in the shock sensitivity of cyclotrimethylene-
 trinitramine explosives” (with Victor Bellitto of the US Navy Surface Warfare
                                     Center).


   ?Canadian Dollar and the Economy of Buffalo? (with Bill Peek and Dan
                               Tompkins)
                              Can an All America City be
                              Reborn at the Expense of
                                      Canada?
        “The surge in the [Canadian] dollar is definitely a big concern for retailers in a
        time of fragile economic recovery,"

        "Canadian consumers have shown time and time again that they are going to
        vote with their wallets. If they are not happy, they are going to shop elsewhere.“

        Mark Beazley of the Retail Council of Canada, the lobby group for the country's
        large and small retailers.

                             - The Canadian Press, October 14, 2009



     Buffalo was selected as an All America City in 1996, and then again in 2002 (jointly with NF)
Source: http://www.ci.buffalo.ny.us/home/ourcity/all_america_city
                                                                                                     At the current price of oil
                                                                                                     of $80/barrel, Canada’s
                                                                                                     oil exports are valued at
                                                                                                       approximately 75.44
                                                                                                        million dollars a day




In 2008 Canada produced                                                              USD in terms of CAD
4% of the world’s production
                                                      1.8
of oil (BP Energy Report, 2009),
                                                      1.6
which constituted 3,238,000
barrels per day                                       1.4

                                                      1.2

Canada’s consumption of oil                            1

constituted only 2,295,000                            0.8
barrels per day.                                      0.6

                                                      0.4
Canada’s oil exports constitute
                                                      0.2
approximately 943,000 barrels
per day                                                0
                                                            1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Sources: US Dept. of Energy, Central Bank of Canada
                                     Canadian Dollar
                                     Rate of appreciation
                                      of the USD versus
                                             CAD
                                                            The price of Oil appears to explain almost 18%
 % Change in the price of Oil            -0.0856811
                                          0.0310897         of the CAD/USD exchange rate fluctuation
 Comm.Paper - US Treasury, 3 month        1.733839
                                         0.8622039          10% appreciation in the price of oil seems to
                                                            appreciate the CAD by about 0.9% against the USD
 FFR/BR                                  -0.1858138
                                          0.5610012
                                                            For example, an oil price appreciation from the
 US Inflation (CPI)                      -1.159252          current price of about 75 to 100, would induce
                                         0.7856634
                                                            the CAD appreciation by about 3% (about 3 cents
 Canadian Inflation (CPI)                 1.596622          based on the current levels).
                                          1.000247

 Constant                                -0.6882912
                                          0.3442814

 F( 5,       86)                            5.48
 N                                           92
 Lags                                         3

 Pseudo R2                                 0.2674


  Newey-West method is selected, no statistical evidence of AR or MA process



Source: NU
Rising Canadian Dollar Brings Canadian
              Shoppers

       Canadian Passenger Car Traffic over Peace Br.

       1200000



       1000000



       800000



       600000



       400000



       200000



            0
                 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008




          Correlation with the USD exchange: -0.24
   As the USD weakens, the traffic on the bridge increases
                           Peace Bridge Traffic
    DepVar = Monthly % Change in Peace Bridge Same Day Canadaian Passenger Car Traffic
                                                            I                       II

    USD Change                                              -0.7267724          -1.004384
                                                            0.2857215           0.3991803

    Ontario Unemployment Rate                               -0.4731281          1.167234
                                                             1.102981           2.480608

    Ontario Population                                                          0.0202623
                                                                                 0.01388

    Ontario - NY Sales Tax (county/prov incl.)                                  3.899484
                                                                                3.147427

    Constant                                                 3.570779           -284.9349
                                                             7.423622            200.778

    N                                                           88                  60
    Wald Chi2                                                 103.65              29.73
    Deg of Fredom                                                5                  7
    AR(1)                                                   -0.4199925         -0.3668481
                                                            0.1138003           0.1523579
    MA(2)                                                   -0.4764105          -0.321401
                                                            0.1373868           0.2557151
    MA(12)                                                  0.8794357           0.8237299
                                                            0.1392113           0.3396448
    ARIMA specification is used: criteria for choice, AIC/BIC minimization



A 1% USD depreciation seems to cause the Canadian visitor traffic to increase
                             by nearly 1%.
                     Canadian Shopping
                                      Correlations
                           Sales tax revenues and the USD
                                                                          NY State
                                            Niagara     Erie             less Niag.
                                  USD       County     County   NY State and Erie
USD                                1
Niagara County                  -0.6283        1
Erie County                     -0.5615     0.8541        1
NY State                        -0.1469     0.1698     0.1069      1
NY State less Niag. and Erie    -0.1427     0.1633     0.0995      1         1
               Exchange Impact on the Sales Tax Revenues
Dep.Var. = Niagara + Erie County Sales Tax Revenues Growth

USD Growth                                        -1.28212
                                                   0.80947

US Inflation                                      -4.00283         Average Sales Tax Collections
                                                   5.52879
                                                                       •Erie: 41.5 million / month
Canadian Inflation                                2.93521
                                                  7.67851              •Niagara: 6.17 million / month
Erie County Average Wage                          -0.00560         Current Tax Rates
                                                   0.05708
                                                                       •Erie: 4.75
Buffalo Unemployment Change                       -0.60963
                                                   6.01542
                                                                       •Niagara: 4
Buffalo Employment                                0.00007
                                                  0.00020
                                                             The Canadian Shopper Effect
Ontario Unemployment Change                       -2.78196
                                                   7.42819

NY-BUF Sales Tax Rev. Growth                      0.00332    A 1% USD depreciation should be
                                                  0.01923
                                                             expected to increase the Buffalo region
Ontario Tax Rate                                  -0.62668
                                                   2.69716
                                                             sales tax collection by about 1.28% ($610,000
Erie County Tax Rate                              3.50631
                                                             a month).
                                                  6.88794

Constant                                        -31.56003    This suggests that the Canadian shoppers
                                                105.35030
                                                             Will spend an extra 12.8 million dollars/month
Wald chi2(13)                                        46.50
N                                                       87   In the Buffalo area stores. Overall, the Buffalo
AR(1)                                             -0.52507
                                                   0.17720   Area retail sales are almost $1.4 billion/month
MA(2)                                             -0.58007
                                                   0.26052
MA(12)                                             1.00663
                                                   0.39356
                              Retail Employmnet as % of Total Private Employment




                               0
                                    2
                                         4
                                              6
                                                   8
                                                        10
                                                             12
                                                                  14
                                                                       16
                      19                                                    18
                         90
                      19
                         91
                      19
                         92
                      19
                         93
                      19
                         94
                      19
                         95
                      19
                         96
                      19
                         97
                      19
                         98
                      19




Buff_Retail%total
                         99
                                                                                                   Jobs?




                      20
                         00
                      20
                         01
                      20
                         02
                      20
                         03
                      20
NY-BUF_Retail%total


                         04
                      20
                         05
                      20
                         06
                      20
                         07
                      20
                         08
                                                                                   Do Canadian Shopping Dollars Bring Retail
Dep.Var. = Buf-NF Retail Employment / Total Private Empl.

USD Appreciation                         0.0040908
                                         0.0031002          The region follows the state, but is
                                                            slightly more volatile
NY Retail/Total                           1.136497
                                         0.0398008
                                                            Canadian Inflation helps the region’s
US Inflation                            -0.0311058          retail sector
                                         0.0222703

Canadian Inflation                       0.0735797
                                         0.0234356

Ontario Unemployment                      0.023238
                                         0.0270603

Buf/NY Wage Ratio                       -0.2366038
                                         0.141341

Constant                                -0.3781672
                                         0.5006137

Wald chi2(7)                              1367.16
N                                           87

AR(1)                                    0.8794117
                                         0.0504461
 It appears that the Canadian Dollar movements impact
      Canadian/US consumer behavior. Our sales tax
collections seem to be affected significantly by the dollar
                       fluctuations.
However, the dollar movement so far has failed to spark
     significant employment growth in the retail sector.

             These Results are Preliminary
Data on Canadian Income/Population dynamics needs to
  be included more extensively to draw more concrete
                     conclusions

				
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