In the case of the dollar shock considered previously, these models suggest that the all-in effects of the stronger dollar on GDP are only about one-half to two-thirds as large as implied by the trade model that abstracts from a monetary policy response – still substantial, to be sure, but much less significant for the economy than if monetary policy failed to play an active role.
Conclusion To wrap up, while the dollar’s appreciation and foreign weakness have been a sizable shock, the U.S. economy appears to be weathering them reasonably well, notwithstanding their large effects on certain sectors of the economy heavily exposed to international trade.