Friday, February 14, 2014

Saint Valentine’s Day Economics

Saint Valentine’s Day is a moment of the year we revive friendship and love. Friendship and love are feelings but Economist would rather define them as strategic interactions between two or more players who are getting together to maximize their wellbeing. 

To celebrate (Saint) Valentine’s Day, some friends and lovers seeking to please each other exchange gifts. Some of these gifts are bought online. Here in Canada, sometimes, we find it economical to shop online from the United States (US), our southern neighbor. Some Canadian businesses also get their supplies of Valentine’s Day products from the US. An increase in households’ online shopping and in businesses’ supplies from the US induces an increase in the demand of the US dollar to pay for the transactions. Could this cause the US dollar to appreciate, viz. to rise, versus the Canadian dollar around Valentine’s Day? 

Note sure because, on the other hand, many American couples cross the US border around Valentine’s Day to spend time and money in Canada. Quebec Winter Carnival held in the beginning of February is one of the many attractions of our country. So, given the interaction between the two economies, out of curiosity, I am wondering how trade and tourism around Valentine’s Day affect our currencies.

To attempt answering for this question, I have observed the behavior of the Canada-US exchange rate on Valentine’s Day and the ten business days before that moment from 2005 to now. By Canada-US exchange rate I mean how much US dollar you get in exchange for one Canadian dollar. 
I have reported in the table below the exchange rate and its actual rate of appreciation on Valentine’s Days and its average value and average rate of appreciation ten business days before.

Canada-US Dollar Exchange Rate on Valentine’s Day and Ten Business Days Before

Over the sample, I have observed that:
  • The Canadian dollar gains value or remains stable on Saint Valentine's Day,
  • Ten business days before Valentine’s Day, the Canadian dollar lost value on average versus the US dollar only on three occasions: in 2006 and during the financial crisis in 2008, and 2009 when many US citizens lost their jobs and homes.
Obviously the most attractive one on the occasion is the Canadian dollar J.
Happy Valentine's Day to all!