Academic Papers

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.
Canzoneri, Matthew, Dale Henderson, and Kenneth Rogoff. 1983. “The Information Content of the Interest Rate and Optimal Monetary Policy.” Quarterly Journal of Economics 98: 545-566. Abstract

Optimal monetary policy rules are derived in a rational expectations cum contracting framework. Monetary policy is redundant if wage setters exploit the incomplete current information embodied in today's nominal interest rate. However, the monetary authorities can save wage setters the costs of "indexing" to the interest rate. A contemporaneous money supply feedback rule is as effective as wage indexation. A lagged rule, relevant under a regime of money supply targeting, is also as effective if investors use the interest rate. Both rules have the same implications for the real interest rate as Poole's combination policy. However, the two rules have strikingly different implications for the nominal interest rate.

Meese, Richard, and Kenneth Rogoff. 1983. “Empirical Exchange Rate Models of the Seventies: Do They Fit Out of Sample?” Journal of International Economics 14: 3-24.
Henderson, Dale, and Kenneth Rogoff. 1982. “Negative Net Foreign Assest Positions and Stability in a World Portfolio Balance Model.” Journal of International Economics 13: 85-104. Abstract

Negative net foreign asset and positions have been associated with a troublesome stability problem in flexible exchange rate regimes. In this paper, a symmetrically-specified, two-country, portfolio balance model is employed to provide some perspective on this problem. It is concluded that negative negative net foreign asset positions do not constitute an independent source of instability. Instability can arise only under nonrational expectations or because of destabilizing speculation.

Canzoneri, Matthew, and Kenneth Rogoff. 1979. “The Consistent Application of Boundary Conditions in Rational Expectations Models.” Economic Letters 4: 19-22.