The reason is that a larger share of global trade prices is sticky in US dollars under DCP, even if the related trade does not involve the United States. As a result, a larger share of global imports becomes more expensive in local currency terms in response to the appreciation of the US dollar, which elicits expenditure switching from imports to domestically produced goods.
[8] See Auer, S. (2019), “Monetary policy shocks and foreign investment income: Evidence from a large Bayesian VAR”, Journal of International Money and Finance, Elsevier, vol. 93(C), pp. 142-166. [9] See Ca’ Zorzi, M., Dedola, L., Georgiadis, G., Jarociński, M., Stracca, L. and Strasser, G., “Monetary policy and its transmission in a globalised world”, ECB Discussion Paper, forthcoming.