[A-List] Rudiger Dornbusch

["Keaney Michael" <Michael.Keaney@xxxxxx>]

Few economists illustrated better the ideological function played by
their profession in the buttressing of the institutionalised plunder and
despoliation of planet earth than Rudi Dornbusch. The co-author of a
grotesque text book inflicted upon thousands of students worldwide who
learn its free market mantras, Dornbusch was also a regular on US
television as a pundit cheering the advance of those same "free markets"
as in the Asian crisis of 1997/8, when he was publicly applauding the
surrender of Korean autonomy to the US Treasury and IMF. He was also a
semi-regular contributor to the Financial Times, who appear to have
replaced him with Brad DeLong and UCLA Pinochet apologist Sebastian
Edwards. Here's the official version of his obituary, but I expect some
people here will have a few other details of their own to add.


Rudi Dornbusch

Understanding the volatility of currency markets

Richard Adams
Thursday September 12, 2002
The Guardian

The economist Rudi Dornbusch, who has died of cancer aged 60, was a rare
combination of thinker and teacher. He not only tutored a generation of
leading economists and policy-makers, but also gave economics one of its
most important breakthroughs in the modern era.

Born in Germany, as Rudiger but forever known as Rudi, Dornbusch's name
was best known as the co-author - with former International Monetary
Fund deputy director Stanley Fischer - of the highly successful textbook
Macroeconomics, now in its eighth edition.

For more than 20 years, copies of "Fischer and Dornbusch" have guided
economics undergraduates through their introductory courses - with the
textbook's lucid prose bringing understanding to the most perplexed
student mind.

As an academic, Dornbusch's breakthrough came with the publication of
his research paper Expectations And Exchange Rate Dynamics, in 1976,
while he was an assistant professor at the Massachusetts Institute of
Technology (MIT) in Boston. This, according to his former student, Paul
Krugman, brought international macroeconomics into the modern world.

The standard model of exchange rates at the time - nicknamed
Mundell-Fleming, after its inventors - suggested that exchange rates of
currencies should gradually adjust after an economic event such as an
interest rate cut. But - in a world where currencies were increasingly
being traded on international markets - exchange rates instead swung
violently and irrationally.

Dornbusch's paper was the first explanation that captured the volatility
of currency exchange rates - it explained why free-floating currencies
had a tendency to overshoot their "fair value" not because of events in
themselves, but because of people's expectations of what might happen in
the future.

Just as importantly, Dornbusch's work explained that delays in the
exchange rate's impact on the economy were the reason exchange rates
would continue to overshoot - and undershoot - their fair value, since
financial markets adjust much more rapidly than wages and prices in the
real economy.

In time Dornbusch's specific model proved to be less than accurate, but
his 1976 paper remains the first big step towards current thinking that
exchange rates reflect future expectations.

The timing of the paper was perfect, with the 1970s seeing the breakdown
of the Bretton Woods system of pegged exchange rates that had been in
place since 1945. The new world of floating exchange rates needed new
models to provide grounds for analysis, which Dornbusch's paper
provided.

His academic career - beginning as an undergraduate at the University of
Geneva in 1966 - contained a great deal of other important work,
including analysis of the economic problems of Asia and Latin America.

After Geneva, Dornbusch earned his doctorate at Chicago in 1971, when
the faculty there was at the height of its powers during the reign of
Milton Friedman. A spell of postdoctorate research at the London School
of Economics was fol lowed by his first post at MIT - where he worked
for the following 27 years.

Dornbusch helped turn MIT's economics department into the most respected
in the world, a position it retains today. That reputation was bolstered
by Dornbusch's accomplishment as a teacher.

By the time of his death he had supervised 125 PhD theses, and inspired
thousands of other students through his seminars. "In my generation,
almost everyone in macro or international [economics] who has since
risen to some reputation was a Rudi Dornbusch student," writes Paul
Krugman, who describes him as "one of the great economics teachers of
all time".

Dornbusch frequently worked in a practical capacity, advising foreign
governments on economic policy - and that gave him an enduring interest
in policy issues. He correctly predicted the Mexican peso crisis in
1994, and was a vocal advocate of developing nations setting policy in a
manner that would attract international investment - strong fiscal
policy, low inflation and a stable currency.

The annual World Economic Forum in Davos was the scene for many of
Dornbusch's lively policy prescriptions. During sessions in which he
spoke, he ruled that anyone whose mobile phone rang would be required to
ask a question - and would enforce the ruling on unlucky offenders.

Dornbusch classified economists as either goldsmiths, pigs or plumbers.
Pigs would leap into a subject with vigour and wallow in it - Larry
Summers, Dornbusch's student and a former US treasury secretary, was
praised as a "fearful pig" - while his ire was reserved for plumbers,
economists who were obsessed with constructing elaborate devices without
a clear purpose.

Goldsmiths, however, were careful, meticulous researchers - the category
Dornbusch most admired, and the one into which he best fitted.

He is survived by his wife, Sandra Masur.

· Rudi (Rudiger) Dornbusch, economist, born June 8 1942; died July 25
2002