Academic Papers

Reinhart, Carmen M, Kenneth Rogoff, and Miguel A Savastano. 2003. “Debt Intolerance.” Brookings Papers on Economic Activity 1: 1–74. Abstract

This paper introduces the concept of debt intolerance,' which manifests itself in the extreme duress many emerging markets experience at debt levels that would seem manageable by advanced country standards. We argue that safe' external debt-to-GNP thresholds for debt intolerant countries are low, perhaps as low as 15 percent in some cases. These thresholds depend on a country's default and inflation history. Debt intolerance is linked to the phenomenon of serial default that has plagued many countries over the past two centuries. Understanding and measuring debt intolerance is fundamental to assess the problems of debt sustainability, debt restructuring, capital market integration, and the scope for international lending to ameliorate crises. Our goal is to make a first pass at quantifying debt intolerance, including delineating debtors' clubs and regions of vulnerability, on the basis on a history of credit events going back to the 1820s for over 100 countries.

Reinhart, Carmen M., and Kenneth S. Rogoff. 2002. “F D I to Africa: The Role of Price Stability and Currency Instability.” (Pleskovic, Boris, Nicholas Stern, eds.) The New Reform Agenda. Washington, DC: Annual World Bank Conference on Development Economics, 247-282. Download from IMF
Obstfeld, Maurice, and Kenneth Rogoff. 2002. “Global Implications of Self-Oriented National Monetary Rules.” Quarterly Journal of Economics 117: 503-36. Abstract

In recent years, many countries have instituted monetary reforms aimed at improving anti-inflation credibility. Is it a problem, however, that international welfare spillover effects seldom receive much consideration in the design of monetary reforms? Surprisingly, the answer may be no. Under plausible conditions, as domestic rules improve and international financial markets become more complete, the Nash and cooperative monetary rule setting games converge. We base our analysis on a utility-theoretic sticky-wage (new open economy macroeconomics) model; the question we pose simply could not have been adequately formulated using earlier models of monetary cooperation.

Obstfeld, Maurice, Kenneth Rogoff, Elhanan Helpman, and Effraim Sadka. 2002. “Risk and Exchange Rates.” Contemporary Economic Policy: Essays in Honor of Assaf Razin. Cambridge: Cambridge University Press. NBER Working Paper; Abstract

This paper develops an explicitly stochastic new open economy macroeconomics' model, which can potentially be used to explore the qualitative and quantitative welfare differences between alternative exchange rate regimes. A crucial feature is that we do not simplify by assuming certainty equivalence for producer price setting behavior. Our framework also provides a sticky-price alternative to Lucas's (1982) exchange rate risk premium model. We show that the level risk premium' in the exchage rate is potentially quite large and may be an important missing fundamental in empirical exchange rate equations. As a byproduct analysis also suggests an intriguing possible explanation of the forward premium puzzle.

Rogoff, Kenneth, and Jeromin Zettelmeyer. 2002. “Bankruptcy Procedures for Sovereigns: A History of Ideas, 1976–2001.” International Monetary Fund Staff Papers 49 (3): 471–507. Abstract

This paper describes the evolution of ideas to apply bankruptcy reorganization principles to sovereign debt crises. Our focus is on policy proposals between the late 1970s and Anne Krueger's (2001) proposed 'Sovereign Debt Restructuring Mechanism," with brief reference to the economics literature on sovereign debt. We describe the perceived inefficiencies that motivate proposals, and how proposals seek to change debtor and creditor incentives. We find that there has been a moving consensus on what constitutes the underlying problem, but not on how to fix it. The range of proposed approaches remains broad and only recently shows some signs of narrowing.

Obstfeld, Maurice, and Kenneth Rogoff. 2001. “Perspectives on OECD Capital Market Integration: Implications for U.S. Current Account Adjustment.” Global Economic Integration: Opportunities and Challenges, 169-208. Federal Reserve Bank of Kansas City. Chapter
Obstfeld, Maurice, Kenneth Rogoff, Ben Bernanke, and Kenneth Rogoff. 2001. “The Six Major Puzzles in International Macroeconomics: Is there a Common Cause?” NBER Macroeconomics Annual 2000, 339-390. Cambridge, MA: MIT Press. NBER volume; Abstract

The central claim in this paper is that by explicitly introducing costs of international trade (narrowly, transport costs but more broadly, tariffs, nontariff barriers and other trade costs), one can go far toward explaining a great number of the main empirical puzzles that international macroeconomists have struggled with over twenty-five years. Our approach elucidates J. McCallum's home bias in trade puzzle, the Feldstein-Horioka saving-investment puzzle, the French-Poterba equity home bias puzzle, and the Backus-Kehoe- Kydland consumption correlations puzzle. That one simple alteration to an otherwise canonical international macroeconomic model can help substantially to explain such a broad arrange of empirical puzzles, including some that previously seemed intractable, suggests a rich area for future research. We also address a variety of international pricing puzzles, including the purchasing power parity puzzle emphasized by Rogoff, and what we term the exchange-rate disconnect puzzle.' The latter category of riddles includes both the Meese-Rogoff exchange rate forecasting puzzle and the Baxter-Stockman neutrality of exchange rate regime puzzle. Here although many elements need to be added to our extremely simple model, we can still show that trade costs play an essential role.

Rogoff, Kenneth. 2001. “Why Not a Global Currency.” American Economic Review 91: 243-47.
Rogoff, Kenneth. 2001. “The Failure of Empirical Exchange Rate Models: No Longer New but Still True.” Economic Policy Web Essay 1 (1). Economic Policy
Obstfeld, Maurice, and Kenneth Rogoff. 2000. “New Directions for Stochastic Open Economy Models.” Journal of International Economics 50: 117-53. Abstract

The paper develops a simple stochastic new open economy macroeconomic model based on sticky nominal wages. Explicit solution of the wage-setting problem under uncertainty allows one to analyze the effects of the monetary regime on welfare, expected output, and the expected terms of trade. Despite the potential interplay between imperfections due to sticky wages and monopoly, the optimal monetary policy rule has a closed-form solution. To motivate our model, we show that observed correlations between terms of trade and exchange rates are more consistent with our traditional assumptions about nominal rigidities than with a popular alternative based on local-currency pricing.

Rogoff, Kenneth, and Martin Feldstein. 1999. “Perspectives on Exchange Rate Volatility.” International Capital Flows, 441-453. Chicago: University of Chicago Press and NBER. NBER volume, chapter 10;
Rogoff, Kenneth. 1999. “Monetary Models of Dollar/Yen/Euro Nominal Exchange Rates: Dead or UnDead?” The Economic Journal 109: F655-F659.
Rogoff, Kenneth. 1999. “Institutions for Reducing Global Financial Instability.” Journal of Economic Perspectives 13: 21–42. Abstract

This paper asks how recent developments in research on banking and sovereign lending can help inform the debate on choosing a new international financial architecture. A broad range of plans is considered, including a global lender of last resort facility, an international bankruptcy court, an international debt insurance corporation, and unilateral controls on capital flows.

Rogoff, Kenneth. 1998. “Comment on Paul Krugman's It's Baaack: Japan's Slump and the Return of the Liquidity Trap.” Brookings Papers on Economic Activity 2 Fall: 194-99.
Rogoff, Kenneth. 1998. “Blessing or Curse? Foreign and Underground Demand for Euro Notes.” Economic Policy 13 (26): 263-303.
Rogoff, Kenneth, and Alan Meltzer. 1998. “The Risks of Unilateral Exchange Rate Pegs.” The Implications of Globalization of World Financial Markets, 153-170. Seoul: Bank of Korea.
Rogoff, Kenneth. 1996. “The Purchasing Power Parity Puzzle.” Journal of Economic Literature 34: 647-68.
Froot, Kenneth, Michael Kim, and Kenneth Rogoff. 1995. “The Law of One Price over 700 Years”. Download from IMF
Paper Appendix Data
Obstfeld, Maurice, and Kenneth Rogoff. 1995. “The Intertemporal Approach to the Current Account.” Handbook of International Economics 3: 1731-99. NBER Working Paper #4893 Abstract

The intertemporal approach views the current-account balance as the outcome of forward-looking dynamic saving and investment decisions. This paper, a chapter in the forthcoming third volume of the Handbook of International Economics, surveys the theory and empirical work on the intertemporal approach as it has developed since the early 1980s. After reviewing the basic one-good, representative- consumer model, the paper considers a series of extended models incorporating relative prices, complex demographic structures, consumer durables, asset-market incompleteness, and asymmetric information. We also present a variety of empirical evidence illustrating the usefulness of the intertemporal approach, and argue that intertemporal models provide a consistent and coherent foundation for open-economy policy analysis. As such, the intertemporal approach should supplant the expanded versions of the Mundell-Fleming IS-LM model that currently furnish the dominant paradigm used by central banks, finance ministries, and international economic agencies.

Froot, Ken, and Kenneth Rogoff. 1995. “Perspectives on PPP and Long-Run Real Exchange Rates.” Handbook of International Economics, 3: 1647-88. Abstract

This paper reviews the large and growing literature which tests PPP and other models of the long-run real exchange rate. We distinguish three different stages of PPP testing and focus on what has been learned from each. The most important overall lesson has been that the real exchange rate appears stationary over sufficiently long horizons. Simple, univariate random walk specifications can be rejected in favor of stationary alternatives. However, we argue that multivariate tests, which ask whether any linear combination of prices and exchange rates are stationary, have not necessarily provided meaningful rejections of nonstationarity. We also review a number of other theories of the long run real exchange rate -- including the Balassa-Samuelson hypothesis -- as well as the evidence supporting them. We argue that the persistence of real exchange rate movements can be generated by a number of sensible models and that Balassa- Samuelson effects seem important, but mainly for countries with widely disparate levels of income of growth. Finally, this paper presents new evidence testing the law of one price on 200 years of historical commodity price data for England and France, and uses a century of data from Argentina to test the possibility of sample-selection bias in tests of long-run PPP.

NBER Working Paper