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The effects of a stronger dollar on U.S. prices

Author

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  • Federico J. Diez
  • Gita Gopinath

Abstract

Since 2014:Q3, the U.S. dollar has experienced the third-fastest appreciation in over 30 years, with its nominal exchange and real exchange rate rising 15 percent against almost all foreign currencies (as measured by the Major Currencies Dollar Index). This sudden and rapid gain has engendered concerns about how a stronger dollar will affect U.S. export and import prices and ultimately, consumer prices and inflation in the United States. This paper assembles a rich database, spanning the period from 1985:Q1 through 2014:Q4, that combines several measures of prices and exchange rates in order to examine the likely outlook for U.S. import and export prices and consumer prices in the short run (one quarter) and over a 24-month period.

Suggested Citation

  • Federico J. Diez & Gita Gopinath, 2015. "The effects of a stronger dollar on U.S. prices," Current Policy Perspectives 15-9, Federal Reserve Bank of Boston.
    • Handle: RePEc:fip:fedbcq:2015_009
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    References listed on IDEAS

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    1. Burstein, Ariel T. & Neves, Joao C. & Rebelo, Sergio, 2003. "Distribution costs and real exchange rate dynamics during exchange-rate-based stabilizations," Journal of Monetary Economics, Elsevier, vol. 50(6), pages 1189-1214, September.
    2. Berger, David & Faust, Jon & Rogers, John H. & Steverson, Kai, 2012. "Border prices and retail prices," Journal of International Economics, Elsevier, vol. 88(1), pages 62-73.
    3. Gopinath, G. & Helpman, . & Rogoff, K. (ed.), 2014. "Handbook of International Economics," Handbook of International Economics, Elsevier, edition 1, volume 4, number 4.
    4. Goldberg, Linda S. & Campa, Jose M., 2006. "Distribution margins, imported inputs, and the insensitivity of the CPI to exchange rates," IESE Research Papers D/625, IESE Business School.
    5. Linda S. Goldberg & José Manuel Campa, 2010. "The Sensitivity of the CPI to Exchange Rates: Distribution Margins, Imported Inputs, and Trade Exposure," The Review of Economics and Statistics, MIT Press, vol. 92(2), pages 392-407, May.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    pass-through entities; exchange rates; inflation;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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