Kenneth Rogoff

Research

My main field of research is international finance, though I have also written extensively on political economy and macroeconomics. Some of the issues I have studied include understanding exchange rates and current accounts, European Monetary Union, international macroeconomic policy coordination, developing-country debt crises, political budget cycles, reputation and monetary policy, purchasing power parity, and speculative hyperinflations. Most of my papers are aimed at advanced graduate students and researchers in the field, though several are also aimed at broader audiences. (See for example, my 1990, 1995, 1999 Journal of Economic Perspectives papers; for writings aimed specifically at general audiences, see my views and commentaries link.)

From a practical perspective, my most important paper has probably been my 1985 Quarterly Journal of Economics paper that began the now vast literature on central bank design, and predates the tidal wave of central bank restructuring throughout the world that peaked in the mid- to late 1990s. My 1988 Brookings paper with Jeremy Bulow questioned the tens of billions of dollars being spent to help developing countries repurchase their debt at deeply-discounted market prices. We argued that contrary to then-received wisdom, this practice was a boondoggle for private bank creditors and provided very little benefit to impoverished debtors. In our 1988 IMF Staff papers and 1989 Journal of Political Economy papers, we introduced the first formal model of the moral hazard faced by international lending institutions and, more broadly, their G-7 sponsors. Finally, my 1983 JIE paper with Richard Meese still stands as providing the central empirical fact about major currency exchange rates (that movements are almost as hard to explain ex post as they are to predict ex ante). This paper is often cited (although we disagree) as a rationale for fixing exchange rates. (See the September 2001 Empirical Exchange Rate conference being sponsored by the Board of Governors of the Federal Reserve System and the Journal of International Economics, as well as, "The Failure of Empirical Exchange Rate Models: No Longer New, But Still True,” Economic Policy Web Essay, September 2001.)

In 1996, I completed a treatise/graduate text with Maurice Obstfeld on Foundations of International Macroeconomics. (We are now working on a second volume!) The book (832pp.) attempts to provide the first modern integrative treatment of the core issues in international macroeconomics. In addition to unifying a field that had previously been considered quite scattered and disconnected, the book contains a significant amount of new research. Perhaps the most important contribution was a model to replace the Mundell-Fleming-Dornbusch open economy model that had previously been the workhorse of virtually all policy analysis in international economics, both in and outside the government. Our “new open economy macroeconomics” model inherits many of the empirical sensibilities of the earlier framework while providing microfoundations and integrating dynamics in coherent way for the first time. This allows one to analyze intertermporal issues such as the current account and government budget deficits, and view macroeconomic policy from a welfare-theoretic perspective. An application is our 2002 Quarterly Journal of Economics paper that looks at the potential welfare gains to greater coordination in the establishment of central bank monetary rules.

"The Six Major Puzzles in International Macroeconomics: Is there a Common Cause?" (with Maurice Obstfeld), in the NBER Macroeconomics Annual 2000, Obstfeld and I argue that virtually all the major “failures” of the canonical models of international financial integration (e.g., why are current accounts generally so small, why is there such a pronounced home bias in asset holdings, why aren’t consumption growth rates more highly correlated internationally, why do shocks to relative prices across countries take so long to damp out?) can be explained, both qualitatively AND quantitatively, in a relatively simple framework that allows for trade costs (including transport but also legal, cultural and language barriers).

Of my recent research, I am particularly excited about my ongoing work with Carmen Reinhart on "The Modern History of Exchange Rate Arrangements: A reinterpretation," Quarterly Journal of Economics, forthcoming 2004. The paper puts together a vast new data set on both market and parallel exchange rates, and argues that exchange rate regimes should be categorized on a de facto rather than de jure basis. The punch line of the paper is that official historical categorization of exchange rate regimes is little better than random; countries that declare themselves to be floating very often allow almost no movement in their exchange rates. Historically, countries that declared themselves to have a fixed rate, very often have allowed major floating through the back door of a dual or parallel market. Finally, in "Debt Intolerance" (with Carmen M. Reinhart and Miguel A. Savastano, Brookings Papers on Economic Activity, we address the implications of the little-studied phenomenon of serial default, concluding that many of today’s highly indebted countries are at considerably risk of running into trouble again in the relatively near future. The International Monetary Fund’s (where I served as director of research 2001-2003) September 2003 edition of the twice-yearly World Economic Outlook, Chapter III, Public Debt in Emerging Markets: Is It Too High? contains an extremely interesting extension that reaches broadly similar conclusions.

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