The Residential Integration of Transnational Regional Economies: Evidence from the 2015 Swiss Franc Appreciation

Abstract

This paper investigates the residential relocation drivers of labor market outcomes in a transnational setting, focusing on the effect of exchange rate policies on non-tradable goods (housing). We construct a theoretical residence choice model for a transnational economy with an integrated labor market but with heterogeneous consumption, housing, and amenities. Then, we test this model with the 2015 Swiss Franc (CHF) appreciation, which caused an increase in the purchasing power of a Swiss salary spent in the Eurozone (EZ) consumption market. The variations in cross-border and total employment suggest that, after the shock, inner Swiss Municipalities experience only a labor supply effect, while in border ones there is both a labor supply and a residential relocation effect. We find heterogeneous responses at the regional level: in Italian and French-speaking Municipalities the relocation effect prevails, while in German-speaking ones is a matter of labor-leisure time trade-off. The results on the other side of the border (Italy and Germany) are coherent with our effects in Switzerland. Our findings suggest that macroeconomic policies might cause discriminating regional housing effects within and across Countries driven by the residential integration in a transnational regional economy.

Keywords: residential relocation, cross-border employment, housing prices, exchange rate

JEL Classification: R23, J61, R30, F31