The larger the share of imports and exports in the economy, the greater the change in net exports – and, hence, in the contribution of net exports to gross domestic product (GDP) growth – for a given change in the exchange rate.
In addition, the larger the share of imports in the economy, the larger should be the effect on overall CPI inflation of a given change in import prices when the exchange rate changes. 4 (This effect is explicitly incorporated in Federal Reserve staff models of U.S. inflation, which weight import prices by the share of imports in the consumption basket.)