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July 18, 2015

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Posted: 18 Jul 2015 12:06 AM PDT

'The Effect of the Strong Dollar on U.S. Growth'

Posted: 17 Jul 2015 01:41 PM PDT

Mary Amiti and Tyler Bodine-Smith in the NY Fed's Liberty Street Economics blog:

The Effect of the Strong Dollar on U.S. Growth: The recent strengthening of the U.S. dollar has raised concerns about its impact on U.S. GDP growth. The U.S. dollar has appreciated around 12 percent since mid-2014, rising against almost all of our trading partners, with the largest gains against Japan, Mexico, Canada, and the euro area. There was far less movement against newly industrial Asian economies and hardly any change against China. In this blog, we ask how the strength of the dollar affects U.S. GDP growth. Although the dollar can impact the U.S. growth through a number of different channels, we focus on the direct impact through the U.S. trade balance. Our analysis shows that a 10 percent appreciation in one quarter shaves 0.5 percentage point off GDP growth over one year and an additional 0.2 percentage point in the following year if the strength of the dollar persists.  ...

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