Academic Papers

Gertler, Mark, and Kenneth Rogoff. 1990. “North-South Lending and Endogenous Domestic Capital Market Inefficiencies.” Journal of Monetary Economics 26: 245-266. Abstract

We develop an open-economy of intertemporal trade under asymmetric information. Capital market imperfections are endogenous and depend on a county's stage of economic development. Relative to the perfect-information benchmark, North-South capital flows are dampened (and possibly reversed) and world interest rates are lower. Whereas riskless rates are equalized across borders, the domestic loan rate is higher in poorer countries. The model can be applied to a number of policy issues including the debt-overhang problem, the indexation of foreign public debts, and the effect of income on distribution growth.

Bulow, Jeremy, and Kenneth Rogoff. 1989. “A Constant Recontracting Model of Sovereign Debt.” The Journal of Political Economy 97: 155–178. Abstract

We present a dynamic model of international lending in which borrowers cannot commit to future repayments and in which debtors can sometimes successfully negotiate partial defaulters or "rescheduling agreements." All parties in a debt rescheduling negotiation realize that today's rescheduling agreement may itself have to be renegotiated in the future. Our bargaining-theoretic approach allows us to handle the effects of uncertainty on sovereign debt contracts in a much more satisfactory way than in earlier analyses. The framework is readily extended to analyze the conflicting interests of different lenders and of banks and creditor country taxpayers.

Bulow, Jeremy, and Kenneth Rogoff. 1989. “Sovereign Debt: Is to Forgive to Forget?” American Economic Review 79: 43–50.
Meese, Richard, and Kenneth Rogoff. 1988. “Was It Real? The Exchange Rate-Interest Differential Relation over the Modern Floating-Rate Period.” Journal of Finance 43 (4): 933-948. Download from JSTOR Abstract

In this paper, we explore the relationship between real exchange rates and real interest rate differentials in the United States, Germany, Japan, and the United Kingdom. Contrary to theories based on the joint hypothesis that domestic prices are sticky and monetary disturbances are predominant, we find little evidence of a stable relationship between real interest rates and real exchange rates. We consider both in-sample and out-of-sample tests. One hypothesis that is consistent with our findings is that real disturbances (such as productivity shocks) may be a major source of exchange rate volatility.

Rogoff, Kenneth, and Anne Sibert. 1988. “Elections and Macroeconomic Policy Cycles.” The Review of Economic Studies 55: 1-16.
Bulow, Jeremy, and Kenneth Rogoff. 1988. “The Buyback Boondoggle.” Brookings Papers on Economic Activity 2: 675–698.
Bulow, Jeremy, and Kenneth Rogoff. 1988. “Multilateral Negotiations for Rescheduling Developing Country Debt: A Bargaining-Theoretic Framework.” International Monetary Fund Staff Papers 35: 644–657. Abstract

A dynamic bargaining-theoretic framework is used to analyze multilateral negotiations for rescheduling sovereign debt. The analysis illustrates how various factors, such as the debtor's gains from trade and the level of the world interest rates, affect the relative bargaining power of various parties to a rescheduling agreement. If creditor-country taxpayers have a vested interest in maintaining normal levels of trade with debtor countries, then they can sometimes be bargained into making sidepayments. The benefits from unanticipated creditor-country sidepayments accrue to both lenders and borrowers. But the benefits from perfectly anticipated sidepayments accrue entirely to borrowers.

Rogoff, Kenneth. 1987. “Reputational Constraints on Monetary Policy.” Carnegie-Rochester Conference Series on Public Policy (Supplement to the Journal of Monetary Economics) 26: 141-181.
Rogoff, Kenneth. 1986. “Comment on Edward C. Prescott's Theory Ahead of Business Cycle Measurement.” Carnegie Rochester Conference Series on Public Policy 25, no. (Fall).
Obstfeld, Maurice, and Kenneth Rogoff. 1986. “Ruling Out Divergent Speculative Bubbles.” Journal of Monetary Economics 17: 349-362.
Rogoff, Kenneth. 1985. “Review of Rational Expectations.” Journal of Money, Credit and Banking 17, no. (November): 545-46.

The evidence presented here suggests that European Monetary System has indeed coincided with more predictable exchange rates (nominal and real) between France, Germany and Italy. But if increased monetary policy coordination is the main explanation, then it is surprising that the conditional variance of real interest differentials between these countries does not appear to have fallen (unless the disturbances are mostly real, in which case fixed rates are suboptimal). High onshore-offshore interest differentials for franc and lira assets, and the very slow convergence of intra-EMS inflation rates, suggest that capital controls have played a large role.

Rogoff, Kenneth. 1985. “The Optimal Degree of Commitment to an Intermediate Monetary Target.” Quarterly Journal of Economics 100: 1169-1189. Abstract

Society can sometimes make itself better off by appointing a central banker who does not share the social objective function, but instead places "too large" a weight on inflation-rate stabilization relative to employment stabilization. Although having such an agent head the central bank reduces the time-consistent rate of inflation, it suboptimally raises the variance of employment when supply shocks are large. Using an envelope theorem, we show that the ideal agent places a large, but finite, weight on inflation. The analysis also provides a new framework for choosing among alternate intermediate monetary targets.

Article See also
Rogoff, Kenneth. 1985. “Can International Monetary Cooperation be Counterproductive.” Journal of International Economics 18: 199-217.
Rogoff, Kenneth. 1984. “Review of Exchange Rate Determination (by Anne O. Kreuger).” Journal of International Economics 17, no. (August): 187-88.
Obstfeld, Maurice, and Kenneth Rogoff. 1984. “Exchange Rate Dynamics with Sluggish Prices under Alternative Price-Adjustment Rules.” International Economic Review 25: 159-174. Download from NBER Abstract

This paper studies exchange rate behavior in models with moving long-run equilibria incorporating alternative price-adjustment mechanisms.The paper demonstrates that price-adjustment rules proposed by Mussa andby Barro and Grossman yield models that are empirically indistinguishable from each other. For speeds of goods-market adjustment that are "too fast," the Barro-Grossman rule appears to induce instability; but we argue that when the ruleis interpreted properly, models incorporating it are dynamically stable regardless of the speed at which disequilibriumis eliminated. The Barro-Grossman pricing scheme is shown to be a natural generalization, to a setting of moving long-run equilibria, of less versatile schemes proposed in earlier literature on exchange rate dynamics.

NBER Working Paper PDF
Rogoff, Kenneth. 1984. “On the Effects of Sterilized Intervention: An Analysis of Weekly Data.” Journal of Monetary Economics 14: 133-150. Abstract

As the recent empirical studies surveyed here illustrate, it is very difficult to demonstrate that the exchange rate risk premium depends (through a portfolio balance channel) on the currency composition of outside assets. The existence of a 'portfolio balance effect' is a necessary condition for sterilized intervention to be a genuinely independent tool of monetary policy. This paper studies U.S./Canada data, and attempts to improve on earlier studies by using higher frequency (weekly) data and by implementing an appropriate instrumental variables technique (2S2SLS). However, we still fail to detect evidence of a portfolio balance effect.

Obstfeld, Maurice, and Kenneth Rogoff. 1983. “Time-Series Studies of the Relationship Between Exchange Rates and Intervention: A Review of the Techniques and Literature.” Federal Reserve Staff Studies 132.
Meese, Richard, Kenneth Rogoff, and Jacob Frenkel. 1983. “The Out-of-Sample Failure of Empirical Exchange Rate Models: Sampling Error or Misspecification?” Exchange Rates and International Macroeconomics, 67-105. Chicago: University of Chicago Press and NBER. NBER volume;
Obstfeld, Maurice, and Kenneth Rogoff. 1983. “Speculative Hyperinflations in Maximizing Models: Can We Rule Them Out?” Journal of Political Economy 91: 675-687.