Effects of a stronger Dollar on U.S. activity and inflation In considering the transmission of changes in the dollar’s value to U.S. output and inflation, it will be convenient for illustrative purposes to focus on the effects of a 10 percent appreciation that is assumed to be permanent – and then to draw on this analysis to provide some guidance on how the dollar’s rise since mid-2014 has played out.
First, over the past decade, we have experienced a tremendous increase in the sophistication of financial instruments. While the positive effect of these innovations has  BIS Review 100/2007  3  been to allow market participants to better share risk, some negative aspects have clearly been highlighted by the ongoing episode.