Persistent Dollar Strength Would Be Big Hit to U.S. Growth: NY Fed Study

By Michael S. Derby 

        The dollar's strength in recent months has been broadly recognized as a force weighing on U.S. growth. New research from the New York Fed seeks to determine how much impact a persistent rise in the dollar might have, and discovers it is significant.
        Writing on the New York Fed website Friday, economists Mary Amiti and Tyler Bodine-Smith say a 10% appreciation in the dollar over the course of a three-month period slices half a percentage point off of the year's total growth rate. If the rise in the dollar is maintained, it will take another 0.2 percentage point off growth the following year.
        With the Fed estimating the economy's long-run growth trend at around 2% to 2.3%, headwinds such as those described in the research can make a real difference.
        The authors note the dollar has risen 12% since the middle of 2014.
        The U.S. economy's contraction in the first quarter has been attributed to factors including bad weather, port closings and the higher dollar. A strong dollar dents economic growth by making U.S. goods relatively more expensive in global markets, which crimps exports, and making imports cheaper.
        The bank said its model indicates a 10% rise in the dollar reduces export volume by 2.6%, which translates to a half percentage point lower net export contribution to gross domestic product. For a two-year period, the appreciation would shave 0.7 percentage point off the net export contribution to GDP.
        Write to Michael S. Derby at michael.derby@wsj.com
        (END) Dow Jones Newswires

        July 17, 2015 17:22 ET (21:22 GMT)

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