Moreover, consumer price inflation rises due both to higher import prices and because the stimulus to activity raises the marginal costs of domestic producers. However, there are several important differences between the results under each specification. First, import prices rise much less under the low pass-through scenario, implying less "direct" upward pressure on consumer prices.
Second, because the relative price of imports rises by less and the price of U.S. exports in foreign markets also falls by less under the low pass-through specification, there are somewhat smaller effects on net exports and, hence, on real output. Third, there is a smaller degree of "indirect" pressure on domestic inflation because of the smaller output response.