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

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Abstract

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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  • Mary Amiti & Tyler Bodine-Smith, 2015. "The Effect of the Strong Dollar on U.S. Growth," Liberty Street Economics 20150717, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednls:87047
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    More about this item

    Keywords

    appreciation; GDP; exports; dollar;
    All these keywords.

    JEL classification:

    • F00 - International Economics - - General - - - General

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