Academic Papers

Rogoff, Kenneth. 2010. “Austerity and the IMF.” Fifth Annual Richard H. Sabot Lecture. Washington, DC: Center for Global Development. Sabot Lecture 2010
Chen, Yu-chin, Kenneth Rogoff, and Barbara Rossi. 2010. “Can Exchange Rates Forecast Commodity Prices?” Quarterly Journal of Economics 125 (3): 1145–1194. Article at QJE. Abstract

We show that "commodity currency" exchange rates have remarkably robust power in predicting global commodity prices, both in-sample and out-of-sample, and against a variety of alternative benchmarks. This result is of particular interest to policymakers, given the lack of deep forward markets in many individual commodities, and broad aggregate commodity indices in particular. We also explore the reverse relationship (commodity prices forecasting exchange rates) but find it to be notably less robust. We offer a theoretical resolution, based on the fact that exchange rates are strongly forward looking, whereas commodity price fluctuations are typically more sensitive to short-term demand imbalances.

Published Paper Paper Data and Programs

There are three great challenges facing researchers in modern macroeconomics today, all brought into sharp relief by the recent financial crisis. The first is to find more realistic, and yet tractable, ways to incorporate financial market frictions into our canonical models for analyzing monetary policy. The second is to rethink the role of countercyclical fiscal policy, particularly in the response to a financial crisis where credit markets seize. A third great challenge is to achieve a better cost‐benefit analysis of financial market regulation.

Reinhart, Carmen M, and Kenneth Rogoff. 2010. “Growth in a Time of Debt.” American Economic Review 100 (2): 573-578. Errata; Abstract

We study economic growth and inflation at different levels of government and external debt. Our analysis is based on new data on forty-four countries spanning about two hundred years. The dataset incorporates over 3,700 annual observations covering a wide range of political systems, institutions, exchange rate arrangements, and historic circumstances. Our main findings are: First, the relationship between government debt and real GDP growth is weak for debt/GDP ratios below a threshold of 90 percent of GDP. Above 90 percent, median growth rates fall by one percent, and average growth falls considerably more. We find that the threshold for public debt is similar in advanced and emerging economies. Second, emerging markets face lower thresholds for external debt (public and private)—which is usually denominated in a foreign currency. When external debt reaches 60 percent of GDP, annual growth declines by about two percent; for higher levels, growth rates are roughly cut in half. Third, there is no apparent contemporaneous link between inflation and public debt levels for the advanced countries as a group (some countries, such as the United States, have experienced higher inflation when debt/GDP is high). The story is entirely different for emerging markets, where inflation rises sharply as debt increases.

Article Detailed Errata Worksheet
Aghion, Philippe, Philippe Bacchetta, Romain Ranciere, and Kenneth Rogoff. 2009. “Exchange Rate Volatility and Productivity Growth: The Role of Financial Development.” Journal of Monetary Economics 56 (4): 494-513. Data; Abstract

This paper offers empirical evidence that real exchange rate volatility can have a significant impact on the long-term rate of productivity growth, but the effect depends critically on a country’s level of financial development. For countries with relatively low levels of financial development, exchange rate volatility generally reduces growth, whereas for financially advanced countries, there is no significant effect. Our empirical analysis is based on an 83-country data set spanning the years 1960–2000; our results appear robust to time window, alternative measures of financial development and exchange rate volatility, and outliers. We also offer a simple monetary growth model in which real exchange rate uncertainty exacerbates the negative investment effects of domestic credit market constraints. Our approach delivers results that are in striking contrast to the vast existing empirical exchange rate literature, which largely finds the effects of exchange rate volatility on real activity to be relatively small and insignificant.

Kose, Ayhan M, Eswar Prasad, Kenneth Rogoff, and Shang-Jin Wei. 2009. “Financial Globalization, A Reappraisal.” International Monetary Fund Staff Papers 56 (1): 8-62. IMF Staff Papers Abstract

The literature on the benefits and costs of financial globalization for developing countries has exploded in recent years, but along many disparate channels with a variety of apparently conflicting results. There is still little robust evidence of the growth benefits of broad capital account liberalization, but a number of recent papers in the finance literature report that equity market liberalizations do significantly boost growth. Similarly, evidence based on microeconomic (firm- or industry-level) data shows some benefits of financial integration and the distortionary effects of capital controls, while the macroeconomic evidence remains inconclusive. At the same time, some studies argue that financial globalization enhances macroeconomic stability in developing countries, while others argue the opposite. We attempt to provide a unified conceptual framework for organizing this vast and growing literature, particularly emphasizing recent approaches to measuring the catalytic and indirect benefits to financial globalization. Indeed, we argue that the indirect effects of financial globalization on financial sector development, institutions, governance, and macroeconomic stability are likely to be far more important than any direct impact via capital accumulation or portfolio diversification. This perspective explains the failure of research based on cross-country growth regressions to find the expected positive effects of financial globalization and points to newer approaches that are potentially more useful and convincing.

Working Paper
Rogoff, Kenneth, and Maurice Obstfeld. 2009. “Global Imbalances and the Financial Crisis: Products of Common Causes.” Asia and the Global Financial Crisis. Asia Economic Policy Conference, Santa Barbara, CA, October 18-20, 2009: Federal Reserve Bank of San Francisco. Conference;
Reinhart, Carmen M, and Kenneth Rogoff. 2009. “The Aftermath of Financial Crises.” American Economic Review 99: 466-472. All Figures and Data Abstract

This paper examines the depth and duration of the slump that invariably follows severe financial crises, which tend to be protracted affairs. We find that asset market collapses are deep and prolonged. On a peak-to-trough basis, real housing price declines average 35 percent stretched out over six years, while equity price collapses average 55 percent over a downturn of about three and a half years. Not surprisingly, banking crises are associated with profound declines in output and employment. The unemployment rate rises an average of 7 percentage points over the down phase of the cycle, which lasts on average over four years. Output falls an average of over 9 percent, although the duration of the downturn is considerably shorter than for unemployment. The real value of government debt tends to explode, rising an average of 86 percent in the major post-World War II episodes. The main cause of debt explosions is usually not the widely cited costs of bailing out and recapitalizing the banking system. The collapse in tax revenues in the wake of deep and prolonged economic contractions is a critical factor in explaining the large budget deficits and increases in debt that follow the crisis. Our estimates of the rise in government debt are likely to be conservative, as these do not include increases in government guarantees, which also expand briskly during these episodes.

Acemoglu, Daron, Kenneth Rogoff, and Michael Woodford. 2008. “Exchange Rate Models Are Not as Bad as You Think: A comment.” NBER Macroeconomics Annual 2007, 443-452. Cambridge: MIT Press. NBER volume;
Reinhart, Carmen, and Kenneth Rogoff. 2008. “Is the 2007 U. S. Sub-Prime Financial Crisis So Different? An International Historical Comparison.” American Economics Review 98: 339-344. All Figures and Data Abstract

Is the 2007-2008 U.S. sub-prime mortgage financial crisis truly a new and different phenomena? Our examination of the longer historical record finds stunning qualitative and quantitative parallels to 18 earlier post-war banking crises in industrialized countries. Specifically, the run-up in U.S. equity and housing prices (which, for countries experiencing large capital inflows, stands out as the best leading indicator in the financial crisis literature) closely tracks the average of the earlier crises. Another important parallel is the inverted v-shape curve for output growth the U.S. experienced as its economy slowed in the eve of the crisis. Among other indicators, the run-up in U.S. public debt and is actually somewhat below the average of other episodes, and its pre-crisis inflation level is also lower. On the other hand, the United States current account deficit trajectory is worse than average. A critical question is whether the U.S. crisis will prove similar to the most severe industrialized-country crises, in which case growth may fall significantly below trend for an extended period. Or will it prove like one of the milder episodes, where the recovery is relatively fast? Much will depend on how large the shock to the financial system proves to be and, to a lesser extent, on the efficacy of the subsequent policy response.

Rogoff, Kenneth. 2007. “Impact of Globalization on Monetary Policy.” The New Economic Geography: Effects and Policy Implications, 265-305. Kansas City: Federal Reserve Bank of Kansas City. New Economic Geography conference
Obstfeld, Maurice, Kenneth Rogoff, and Richard Clarida. 2007. “The Unsustainable U S Current Account Position Revisited.” G7 Current Account Imbalances: Sustainability and Adjustment. Chicago: University of Chicago Press. NBER volume; Abstract

We show that when one takes into account the global equilibrium ramifications of an unwinding of the US current account deficit, currently estimated at 5.4% of GDP, the potential collapse of the dollar becomes considerably larger (more than 50% larger) than our previous estimates (Obstfeld and Rogoff 2000a). That global capital markets may have deepened (as emphasized by US Federal Reserve Chairman Alan Greenspan) does not affect significantly the extent of dollar decline in the wake of global current account adjustment. Rather, the dollar adjustment to global current account rebalancing depends more centrally on the level of goods-market integration. Whereas the dollar’s decline may be benign as in the 1980s, we argue that the current conjuncture more closely parallels the early 1970s, when the Bretton Woods system collapsed. Finally, we use our model to dispel some common misconceptions about what kinds of shifts are needed to help close the US current account imbalance. Faster growth abroad helps only if it is relatively concentrated in nontradable goods; faster productivity growth in foreign tradable goods is more likely to exacerbate the US adjustment problem.

Kose, Ayhan, Eswar Prasad, Kenneth Rogoff, Shang-Jin Wei, and Ann Harrison. 2006. “Financial Globalization, Growth and Volatility In Developing Countries.” Globalization and Poverty. Chicago: University of Chicago Press. NBER volume; Abstract

This paper provides a comprehensive assessment of empirical evidence about the impact of financial globalization on growth and volatility in developing countries. The results suggest that it is difficult to establish a robust causal relationship between financial integration and economic growth. Furthermore, there is little evidence that developing countries have been consistently successful in using financial integration to stabilize fluctuations in consumption growth. However, we do find that financial globalization can be beneficial under the right circumstances. Empirically, good institutions and quality of governance are crucial in helping developing countries derive the benefits of globalization. Similarly, macroeconomic stability appears to be an important prerequisite for ensuring that financial globalization is beneficial for developing countries. Finally, countries that employ relatively flexible exchange rate regimes and succeed in maintaining fiscal discipline are more likely to enjoy the potential growth and stabilization benefits of financial globalization.

NBER Working Paper
Rogoff, Kenneth. 2006. “Global Imbalances and Exchange Rate Adjustment.” Journal of Policy Modeling 28: 695-699. JPM Abstract

An eventual adjustment of the outsized US current account deficit is likely to have significant impact on global exchange rates unless it occurs only over a very long period. Policy responses aimed at reducing the risk of a recession are warranted, but they will not necessarily avoid the exchange rate adjustment.

Rogoff, Kenneth, Aron Gottesman, Lall Ramrattan, and Michael Szenberg. 2006. “Paul Samuelson's Contributions to Economics.” Samuelsonian Economics and the Twenty-First Century. Oxford University Press.
2006. “Keynote Address on Globalization to the United Nations General Assembly.” The Second Committee of the United Nations General Assembly. New York. UN;
Banerjee, A, A Deaton, N Lustig, and K Rogoff. 2006. An Evaluation of World Bank Research, 1998-2005. Washington, DC: World Bank. World Bank
Rogoff, Kenneth, William Brainard, and George Perry. 2005. “Global Current Account Imbalances and Exchange Rate Adjustments.” Brookings Papers on Economic Activity, 67-146.
Article Appendix
Husain, Aasim, Ashoka Mody, and Kenneth Rogoff. 2005. “Exchange Rate Regime Durability and Performance in Developing versus Advanced Economies.” Journal of Monetary Economics 52: 35-64. Abstract

Drawing on new data and advances in exchange rate regimes' classification, we find that countries appear to benefit by having increasingly flexible exchange rate systems as they become richer and more financially developed. For developing countries with little exposure to international capital markets, pegs are notable for their durability and relatively low inflation. In contrast, for advanced economies, floats are distinctly more durable and also appear to be associated with higher growth. For emerging markets, our results parallel the Baxter and Stockman classic exchange regime neutrality result, though pegs are the least durable and expose countries to higher risk of crisis.

2005. “The Euro at Five: Short-run Pain, Long-run Gain?” Journal of Policy Modeling 27 (4): 441-443. JPM; Abstract

The euro has had some marked successes over its first five years included the marked deepening of euro bond markets which has benefited the entire world. But at the same time, the pain has probably outweighed the gain as Europe still remains far from an optimal currency area.