The Effects of a Stronger Dollar on U.S. Prices

We review the effects of a dollar appreciation on U.S. inflation, and on U.S. import and export prices. We calibrate the effects to match the 15 percent dollar appreciation that has occurred since June 2014. Pass-through into import prices and consumer prices is modest. Specifically, a 15 percent dollar appreciation should reduce consumer prices by a quarter of a percentage point in the short run, and by four-tenths of a percentage point after two years. In contrast, pass-through into U.S. exports prices is significantly larger, implying that most of the trade balance adjustment following a change in the value of the dollar occurs through the export channel.