Academic Papers

2016
Kalemli-Ozcan, Sebnem, Carmen Reinhart, and Kenneth Rogoff. 2016. “Sovereign Debt and Financial Crises: Theory and Historical Evidence.” Journal of the European Economic Association 14 (1): 1-6. JEEA
2015
Ferraro, Domenico, Kenneth Rogoff, and Barbara Rossi. 2015. “Can Oil Prices Forecast Exchange Rates?” 54 (June): 116-141. JIMF Abstract

This paper investigates whether oil prices have a reliable and stable out-of-sample relationship with the Canadian/U.S dollar nominal exchange rate. Despite state-of-the-art methodologies, we find little systematic relation between oil prices and the exchange rate at the monthly and quarterly frequencies. In contrast, the main contribution is to show the existence of a very short-term relationship at the daily frequency, which is rather robust and holds no matter whether we use contemporaneous (realized) or lagged oil prices in our regression. However, in the latter case the predictive ability is ephemeral, mostly appearing after instabilities have been appropriately taken into account.

Reinhart, Carmen M, Vincent Reinhart, and Kenneth Rogoff. 2015. “Dealing with Debt.” Journal of International Economics 96, Supplement 1 (July): S43-S55. Publisher's Version;
PDF HKS Working Paper Version
Rogoff, Kenneth, and Takeshi Tashiro. 2015. “Japan's Exorbitant Privilege.” Journal of the Japanese and International Economies 35 (March): 43-61. JJIE Abstract
REITI Working Paper 2014 Update Dataset, November 2014 Updated data for Tables 1-3, May 2015.
Rogoff, Kenneth S. 2015. “Costs and Benefits to Phasing Out Paper Currency.” NBER Macroeconomics Annual 2014, Vol. 29: 445-456. Macro Annual Abstract

Despite advances in transactions technologies, paper currency still constitutes a notable percentage of the money supply in most countries. For example, it constitutes roughly 10% of the US Federal Reserve’s main monetary aggregate, M2. Yet, it has important drawbacks. First, it can help facilitate activity in the underground (tax-evading) and illegal economy. Second, its existence creates the artifact of the zero bound on the nominal interest rate. On the other hand, the enduring popularity of paper currency generates many benefits, including substantial seigniorage revenue. This paper explores some of the issues associated with phasing out paper currency, especially large-denomination notes.

NBER Working Paper 20126
2014
Mozaffarian, Dariush, Kenneth S Rogoff, and David S Ludwig. 2014. “The Real Cost of Food: Can Taxes and Subsidies Improve Public Health?” Journal of the American Medical Association 312 (9): 889-890. JAMA
Article
PDF
Reinhart, Carmen M, and Kenneth S Rogoff. 2014. “Recovery from Financial Crises: Evidence from 100 Episodes.” American Economic Review: Papers and Proceedings 104 (5): 50-55. AER, including data and appendix;
Article Postprint Version
Reinhart, Carmen, Kenneth Rogoff, and Miguel Savastano. 2014. “Addicted to Dollars.” Annals of Economics and Finance 15 (1): 1-50. Read online
Dvir, Eyal, and Kenneth Rogoff. 2014. “Demand Effects and Speculation in Oil Markets: Theory and Evidence.” Journal of International Money and Finance 42 (April): 113-128. JIMF
Data and Programs.
Reinhart, Carmen M, and Kenneth S Rogoff. 2014. “Financial and Sovereign Debt Crises: Some Lessons Learned and Those Forgotten.” Financial Crises: Causes, Consequences, and Policy Responses, edited by S. Claessens, M.A. Kose, L. Laeven, and F. Valencia. Presented September 14, 2012, at IMF conference on financial crises, Washington, DC. IMF Abstract

Even after one of the most severe multi-year crisis on record in the advanced economies, the received wisdom in policy circles clings to the notion that high-income countries are completely different from their emerging market counterparts. The current phase of the official policy approach is predicated on the assumption that debt sustainability can be achieved through a mix of austerity, forbearance and growth. The claim is that advanced countries do not need to resort to the standard toolkit of emerging markets, including debt restructurings and conversions, higher inflation, capital controls and other forms of financial repression. As we document, this claim is at odds with the historical track record of most advanced economies, where debt restructuring or conversions, financial repression, and a tolerance for higher inflation or a combination of these were an integral part of the resolution of significant past debt overhangs.

Reinhart, Carmen, and Kenneth Rogoff. 2014. “This Time Is Different: A Panoramic View of Eight Centuries of Financial Crises.” Annals of Economics and Finance 15 (2). Cambridge: Harvard University: 1065-1188. All Figures, Tables and Data Abstract

This paper offers a “panoramic” analysis of the history of financial crises dating from England’s fourteenth-century default to the current United States sub-prime financial crisis. Our study is based on a new dataset that spans all regions. It incorporates a number of important credit episodes seldom covered in the literature, including for example, defaults and restructurings in India and China. As the first paper employing this data, our aim is to illustrate some of the broad insights that can be gleaned from such a sweeping historical database. We find that serial default is a nearly universal phenomenon as countries struggle to transform themselves from emerging markets to advanced economies. Major default episodes are typically spaced some years (or decades) apart, creating an illusion that “this time is different” among policymakers and investors. A recent example of the “this time is different” syndrome is the false belief that domestic debt is a novel feature of the modern financial landscape. We also confirm that crises frequently emanate from the financial centers with transmission through interest rate shocks and commodity price collapses. Thus, the recent US sub-prime financial crisis is hardly unique. Our data also documents other crises that often accompany default: including inflation, exchange rate crashes, banking crises, and currency debasements.

April 2008 shorter version 2014 Annals Version
2013
Reinhart, Carmen M, and Kenneth S Rogoff. 2013. “Shifting Mandates: The Federal Reserve's First Centennial.” American Economic Review 103 (3): 48-54. Online Data. Abstract

The Federal Reserve's mandate has evolved considerably over the organization's hundred-year history. It was changed from an initial focus in 1913 on financial stability, to fiscal financing in World War II and its aftermath, to a strong anti-inflation focus from the late 1970s, and then back to greater emphasis on financial stability since the Great Contraction. Yet, as the Fed's mandate has expanded in recent years, its range of instruments has narrowed, partly based on a misguided belief in the inherent stability of financial markets. We argue for a return to multiple instruments, including a more active role for reserve requirements.

Article
Reinhart, Carmen M, and Kenneth S Rogoff. 2013. “Banking Crises: An Equal Opportunity Menace.” Journal of Banking & Finance 37: 4557-4573. All Figures, Tables and Data. Abstract

The historical frequency of banking crises is similar in advanced and developing countries, with quantitative parallels in both the run-ups and the aftermath. We establish these regularities using a dataset spanning from the early 1800s to the present. Banking crises weaken fiscal positions, with government revenues invariably contracting. Three years after a crisis, central government debt increases by about 86%. The fiscal burden of banking crisis extends beyond the cost of the bailouts. We find that systemic banking crises are typically preceded by asset price bubbles, large capital inflows and credit booms, in rich and poor countries alike.

2008 version Link to article.
2012
Reinhart, Carmen M, and Kenneth S Rogoff. 2012. “Causes of Financial Crises Past and Present: The Role of the This-Time-Is-Different Syndrome.” The Occupy Handbook, In Janet Byrne (editor). New York: Little, Brown and Co. Publisher
Reinhart, Carmen M, Vincent R Reinhart, and Kenneth S Rogoff. 2012. “Public Debt Overhangs: Advanced-Economy Episodes since 1800.” Journal of Economic Perspectives 26 (3): 69-86. Article, Appendix, and Data. Abstract

We identify the major public debt overhang episodes in the advanced economies since the early 1800s, characterized by public debt to GDP levels exceeding 90 percent for at least five years. Consistent with Reinhart and Rogoff (2010) and most of the more recent research, we find that public debt overhang episodes are associated with lower growth than during other periods. The duration of the average debt overhang episode is perhaps its most striking feature. Among the 26 episodes we identify, 20 lasted more than a decade. The long duration belies the view that the correlation is caused mainly by debt buildups during business cycle recessions. The long duration also implies that the cumulative shortfall in output from debt overhang is potentially massive. These growth-reducing effects of high public debt are apparently not transmitted exclusively through high real interest rates, as in eleven of the episodes, interest rates are not materially higher.

An earlier NBER Working Paper version
2011
Qian, Rong, Carmen M Reinhart, and Kenneth Rogoff. 2011. “On Graduation from Default, Inflation and Banking Crises: Elusive or Illusion?” NBER Macroeconomics Annual 2010. Chicago: University of Chicago Press. NBER volume; Abstract

This paper uses a data set of over two hundred years of sovereign debt, banking and inflation crises to explore the question of how long it takes a country to “graduate” from the typical pattern of serial crisis that most emerging markets experience. We find that for default and inflation crises, twenty years is a significant market, but the distribution of recidivism has extremely fat tails. In the case of banking crises, it is unclear whether countries ever graduate. We also examine the more recent phenomenon of IMF programs, which sometimes result in “near misses” but sometimes end in default even after a program is instituted. The paper raises the important theoretical question of why countries experience serial default, and how they might graduate.

Working Paper
Reinhart, Carmen, and Kenneth Rogoff. 2011. “The Forgotten History of Domestic Debt.” Economic Journal 121 (552): 319-350. Economic Journal Abstract

There is a rich scholarly literature on sovereign default on external debt. Comparatively little is known about sovereign default on domestic debt. Even today, cross-country data on domestic public debt remains curiously exotic, particularly prior to the 1980s. We have filled this gap in the literature by compiling a database on central government public debt (external and domestic). The data span 1914 to 2007 for most countries, reaching back into the nineteenth century for many. Our findings on debt sustainability, sovereign defaults, the temptation to inflate, and the hierarchy of creditors only scratch the surface of what the domestic public debt data can reveal. First, domestic debt is big—for the 64 countries for which we have long time series, domestic debt accounts for almost two-thirds of total public debt. For most of the sample, this debt carries a market interest rate (except for the financial repression era between WWII and financial liberalization). Second, the data go a long way toward explaining the puzzle of why countries so often default on their external debts at seemingly low debt thresholds. Third, domestic debt has largely been ignored in the vast empirical work on inflation. In fact, domestic debt (a significant portion of which is long term and non-indexed) is often much larger than the monetary base in the run-up to high-inflation episodes. Last, the widely held view that domestic residents are strictly junior to external creditors does not find broad support.

Paper All Figures, Tables and Data
Reinhart, Carmen M, and Kenneth Rogoff. 2011. “From Financial Crash to Debt Crisis.” American Economic Review 101: 1676-1706. All Figures, Tables and Data Abstract

Newly developed long historical time series on public debt, along with modern data on external debts, allow a deeper analysis of the cycles underlying serial debt and banking crises. The evidence confirms a strong link between banking crises and sovereign default across the economic history of a great many countries, advanced and emerging alike. The focus of the analysis is on three related hypotheses tested with both “world” aggregate levels and on an individual country basis. First, private debt surges are a recurring antecedent to banking crises; governments quite often contribute to this stage of the borrowing boom. Second, banking crises (both domestic ones and those emanating from international financial centers) often precede or accompany sovereign debt crises. Indeed, we find they help predict them. Third, public borrowing accelerates markedly ahead of a sovereign debt crisis; governments often have “hidden debts” that far exceed the better documented levels of external debt. These hidden debts encompass domestic public debts (which prior to our data were largely undocumented).

Article

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