An appreciation of the dollar, in turn, restrains exports (because the price of U.S. goods rises when measured in foreign currencies) and stimulates imports (because imports become cheaper in dollar  3  International Monetary Fund (2006) finds indirect evidence supporting this channel – namely, that inflation is affected by relative import prices multiplied by import shares in GDP and that import shares have been rising over time.
Ihrig and others (2007) document a rise in the sensitivity of U.S. inflation to import prices over time, although they do not identify such a trend in other countries. BIS Review 108/2007  5  terms). The resulting decrease in net exports implies a reduction in aggregate demand.