Stronger U.S. dollar leads to lower domestic prices for consumers.
Exchange rate changes affect import prices, but the impact on domestic prices is not straightforward. A study found that a stronger U.S. dollar makes imported cars cheaper for Americans, potentially leading domestic auto producers to adjust their prices to stay competitive. The study used data from Belgian firms to show that there is a connection between exchange rate shocks and domestic prices, highlighting the importance of strategic pricing decisions in response to international economic changes.