6 Figure 3 uses these results to gauge how a 10 percent dollar appreciation would reduce U.S. gross domestic product (GDP) through the net export channels we have just discussed. The staff’s model indicates that the direct effects on GDP through net exports are large, with GDP falling over 1-1/2 percent below baseline after three years.
Moreover, the effects materialize quite gradually, with over half of the adverse effects on GDP occurring at a horizon of more than a year. In interpreting these estimated effects on GDP, it is important to underscore that the estimates do not take account of any offset due to monetary policy easing – a key consideration that I will discuss shortly.