Must-Read: Paul Krugman: The Essential Obstfeld
Must-Read: The Essential Obstfeld: “Olivier Blanchard, who has to have been one of the most influential chief economists ever at the IMF, is retiring. Maury Obstfeld will be his replacement…:
…One New Keynesian MIT PhD I know very well replaced with another New Keynesian MIT PhD with whom I co-authored a text now in 10th edition…. Maury’s contributions to economics… two papers in particular that are very relevant. First is his work on self-fulfilling currency crises… that crises could come out of a clear blue sky–that countries could face a speculative attack that would force them off a peg that would otherwise have been indefinitely sustainable…. I was at first very skeptical of this argument. But… I was wrong and Maury was right…. The Obstfeld approach seems highly relevant to the troubles of eurozone countries, and also helps explain why Mario Draghi’s ‘whatever it takes’ worked so well. Second was his work with Ken Rogoff… bringing New Keynesian modeling to floating exchange rates… considered the effects of fiscal as well as monetary policy. As a result, those of us who were well versed in open-economy macroeconomics were fully prepared when issues of fiscal stimulus arose, and didn’t fall into the traps of incomprehension we saw from so many domestic-economy macro types. There is, of course, much more…
Press Release: Appoints Maurice Obstfeld as Economic Counsellor and Director of the IMF’s Research Department: “I am thrilled to have Maurice join us at the Fund…:
…His outstanding academic credentials and extensive international experience make him exceptionally well placed to provide intellectual leadership to the IMF at this important juncture. He is known around the globe for his work on international economics and is considered one of the most influential macroeconomists in the world…
Models of currency crises with self-fulfilling features: “The discomfort a government suffers from speculation against its currency…:
…determines the strategic incentives of speculators and the scope for multiple currency-market equilibria. After describing an illustrative model in which high unemployment may cause an exchange-rate crisis with self-fulfilling features, the paper reviews some other self-reinforcing mechanisms. Recent econometric evidence seems consistent with the practical importance of these mechanisms.
Exchange Rate Dynamics Redux: “Until now, thinking on open economy macroeconomics…:
…has been largely schizophrenic. When it comes to analyzing exchange rate dynamics, an empirically-minded economist abandons modern current account models which, while theoretically coherent, fail to address the awkward reality of sticky nominal prices. In this paper we develop an analytically tractable two-country model that marries a full account of dynamics to a supply framework based on monopolistic competition and sticky prices. It offers simple and intuitive predictions about exchange rates and current accounts that sometimes differ sharply from those of either modern flexible-price intertemporal models, or traditional sticky-price Keynesian models. The model also leads to a novel perspective on the international welfare spillovers of monetary and fiscal policies.