FXStreet (Mumbai) – According to the New York Fed‘s Research and Statistics Group, a 10% surge in the currency results in a 0.5 percentage point decline of GDP growth over one year and it shaves an additional 0.2 percentage point in the following year if the strength of the currency persists.
The group of economists conducting the research concentrated on the direct impact of the appreciation through the US trade balance.
The US dollar has strengthened around 12% since mid-2014.
Key Findings:
“The New York Fed trade model suggests a 10% appreciation of the US dollar in one quarter (which then persists) results in 0.9% increase in real import values.”
“Because import prices do not adjust by the full extent of the appreciation, the increase in demand for import quantities in response to the appreciation is moderated.”
On the export side, “The New York Fed trade model suggests that a 10% appreciation of the US dollar is associated with a 2.6% drop in real export values over the year.”
“Consequently, the net export contribution to GDP growth over the year is 0.5 percentage point lower than it would have been without the appreciation and a cumulative 0.7 percentage point lower after two years.”
(Market News Provided by FXstreet)