The US Dollar And International Economics With Harvard’s Kenneth Rogoff

Jon Hartley and Kenneth Rogoff discuss Ken’s career as an academic economist, his time in international economic policy, rising sovereign debt burdens, monetary policy, the legacy of quantitative easing, exchange rate theories, tariffs, and the US dollar's status as the world reserve currency.

Recorded on May 12, 2025.

ABOUT THE SPEAKERS:

Kenneth Rogoff is Thomas D. Cabot Professor at Harvard University. From 2001-2003, Rogoff served as Chief Economist at the International Monetary Fund. His 2009 book with Carmen Reinhart, This Time is Different: Eight Centuries of Financial Folly, has been very widely cited by academics, policymakers, and journalists. One regularity that Reinhart and Rogoff illustrate is the remarkable quantitative similarities across time and countries in the run-up and the aftermath of severe financial crises. In general, they show that for financial crises, the differences between emerging markets and advanced countries are far less pronounced than previously believed. Rogoff is also known for his seminal work on exchange rates and on central bank independence. His treatise, Foundations of International Macroeconomics (joint with Maurice Obstfeld), is the standard graduate text in the field worldwide. His monthly syndicated column on global economic issues is published in over 50 countries. He serves on the Economic Advisory Panel of the New York Federal Reserve. He is a member of the Council on Foreign Relations. Rogoff is an elected member of the National Academy of Sciences, the American Academy of Arts and Sciences, and the Group of Thirty. Rogoff is among the top ten on RePEc’s ranking of economists by scholarly citations. He is also an international grandmaster of chess.

Jon Hartley is currently a Policy Fellow at the Hoover Institution, an economics PhD Candidate at Stanford University, a Research Fellow at the UT-Austin Civitas Institute, a Senior Fellow at the Foundation for Research on Equal Opportunity (FREOPP), a Senior Fellow at the Macdonald-Laurier Institute, and an Affiliated Scholar at the Mercatus Center. Jon is also the host of the Capitalism and Freedom in the 21st Century Podcast, an official podcast of the Hoover Institution, a member of the Canadian Group of Economists, and the chair of the Economic Club of Miami.

Jon has previously worked at Goldman Sachs Asset Management as a Fixed Income Portfolio Construction and Risk Management Associate and as a Quantitative Investment Strategies Client Portfolio Management Senior Analyst and in various policy/governmental roles at the World Bank, IMF, Committee on Capital Markets Regulation, U.S. Congress Joint Economic Committee, the Federal Reserve Bank of New York, the Federal Reserve Bank of Chicago, and the Bank of Canada. 

Jon has also been a regular economics contributor for 
My guest is Ken Rogoff, who is aneconomics professor at Harvard University,
one of the great internationaleconomists of our time.
He's also a former IMF chief economist anda chess grand master.

(00:29):
Welcome, Ken.

>> Kenneth Rogoff (00:30):
Thank you for having me.
Jon, congratulations onthe success of this podcast.

>> Jon Hartley (00:35):
Well, it's a real honor to have you on.
As someone who does internationaleconomics in my own work,
it's a huge honor and just so excited tohave you on and to have this conversation.
1.I just want to start with your early life.
And I know you were born in Rochester.

(00:56):
You're an undergrad at Yale.
You're a chess prodigy andchess grandmaster.
I think a lot of people know this.
How did you come to find economics?
Make your way to grad schooldoing a PhD in economics at MIT,
where you studied under Rudy Dornbush.
I know your first jobwas at the Fed board.
What was the path from there to Harvard?

(01:17):
I'm curious.
How did this sort of pivot happen fromchess grand master to grand economist?

>> Kenneth Rogoff (01:25):
Well, short version, I decided to go to college,
which was unusual.
I had more or less dropped out of highschool and was living on my own in Europe.
I was doing very well as a chess player.
I was rising fast.
I was earning plenty of money.
I actually earned more as a chessplayer in real terms than I did
as an economist till quitea bit later in life.

(01:49):
Although, of course, I think,as you probably know,
that says something about the pay ofacademic economists as much as chessworse.
And it was much worsewhen I was starting out.
So I just decided to go.
I just decided not to be a chessworth.
Very unusual decision.
I am still quite famous in chess forhaving stopped playing chess and

(02:10):
better known forthat than you might imagine.
How I fell into economics was.
I just didn't know what I wanted to do.
I don't know how to.
So how did you fall into economics?

>> Jon Hartley (02:23):
I took a high school class, and that sort of did it for me.
And that was kind of.

>> Kenneth Rogoff (02:27):
So you were a prodigy.
You.You were inspired in high school and
knew you wanted to do economics andin college already when you arrived?

>> Jon Hartley (02:36):
Well, it took.
I always knew I wanted to do it, but forme, it took a long time, I guess, just
in the sense that I knew I always wantedto do it, to get a PhD and so forth.
But you know, I spent fiveyears working at Goldman Sachs.
I did a couple master's degrees as well.
So it took some time to get there.
But yeah, for me, I also wanted to spendsome time sort of in the private sector

(02:59):
seeing how things inthe real world worked.
And it's worked out great in the sensethat it's informed some research well.
But I take it it's a slightlydifferent path for you.

>> Kenneth Rogoff (03:09):
Yeah.
So when I went to college,I had missed quite a bit, frankly.
My high school was very weak academically.
It's since go into receivership anddon't go into there.
But I mean, I'm not sure what I wouldhave learned at my high school either.
But I lagged a lot at Yale andI was doing Russian studies.

(03:31):
That, and I was thinking aboutthe environment was an idea.
This was in, gosh, you know, the early70s that I was an undergraduate at Yale.
But I had a friend, Jeremy Bulow,he's actually, I think you know him,
he's at Stanford.
Who, who he, like you knew, he wantedto do economics from high school.
I think he saw Milton Friedman speak whenhe was 12 years old or something and

(03:54):
just knew he wanted to be an economist andwas making all the right moves.
And he's a great economist,but he was evangelical and
he brought myself, John Geanakoplos,
who's the Kohl's professor at Yale today,
he just roped us both into economics andsaid, this is something you should do.

(04:18):
And I think what I likedabout economics was I,
I felt like it was very flexible inwhat part of your brain you could use.
At least in the courses, you know,
you could have stuff thatwas very mathematical.
Not that I consider myself great at stuffthat's very mathematical, but, you know,
I, I was solid and at the sametime you could be doing history,

(04:41):
which I liked a lot, and on and on.
I mean, one of the wonderfulthings about economics is you
can kind of pick whatyou're interested in.
So I like that.
But during the summers I played chess.
I stopped playing chess, but I had,I didn't play during the school year,
not at all, but I played during thesummers and actually kept getting better.

(05:04):
But that wasn't helping me as an economistbecause at some point it's very
helpful over the summers to do somethingthat relates to what your thesis might be,
what you're thinking about.
So I would say I was sort of a mile wideand an inch de deep as an economist.
I was a very good test taker.

(05:25):
I don't think I understood anythingthat I was taking tests on, but
if I just had to memorize something,I could do it.
But playing chess in the summerswas exciting and fun and
I was doing well, but it wasn't maturing.
And then I went to graduate school and
I didn't even know whatbeing an economist was.

(05:47):
I knew that if you went to law school, youhad to work at a law firm in the summers.
And I was thinking,I could go to graduate school and
I could keep playing chess in the summers.
Boy, was I wrong about that.
So when I got to MIT, Adam had happenedto be in a great class with people
like Ben Bernanke and Maury Opsfeld andJeremy Bulow and many others.

(06:13):
These people were, they lived,you know, their whole 24
hours doing economics andgave them a depth of understanding.
And it wasn't just aboutdoing the homework.
It was about reallyknowing what you're about.
I didn't, you know, I,I sort of moved along.
I actually dropped out of graduateschool because I qualified to represent

(06:35):
the United States inthe World Championships,
which was only every three years.
That, and I did, I played.
I didn't do as well as I should have.
I think I finished 11th, butI hadn't prepared a lot for that.
I was trying to do graduate school.
I was trying to chase.
I sort of, okay, I can't do both.
So I made a decision.

(06:56):
I would just do economics.
But it still took me a long time to sortof mature to really be an economist.
I had Rudy Dornbush as my advisor,as many people did.
So inspiring.
What a larger than life person.
We compare him to Orson Welles orsomething.
His love of pies, you know,his love of thinking, his love of debate.

(07:19):
And he drew.
He was very exciting.
I'd say Larry Summers wasvery influenced by him.
Many of the people I named,he, he was, he was amazing.
Stan Fisher was also his buddy.
And I think they went running together anddid everything together.
They wrote a textbook together, andhe was on my thesis committee too.

(07:40):
But I still wasn't an economist.
And I think I was only in graduateschool basically three years,
and I just wanted to leave.
And I remember Stan Fisher lookingat my thesis and saying, chin,
do you really want me to sign this?
And I said, yeah, I want to leave.
And he did.
And I left andI got to the Federal Reserve,

(08:03):
which back then was a bit of a backwatercompared to what it is today now.
The Federal Reserve researchdepartment's just amazing.
I mean, you know,particularly in macroeconomics, but
also in many other things.
But back then,it's not something people wanted to do.
And actually Bob Solow andPaul Samuelson both said,

(08:24):
what are you doing doinggoing to the Federal Reserve?
I had some pretty good academic offers,not that I had a thing to offer, but
they knew I was a reallygood chess player, and
they were sort of willing to makeme an offer because of that.
So I got to the Federal Reserve andI was at sea.

(08:44):
I frankly would.
They give you a lot of time to do yourresearch when you're a new staff member.
And I would like lie onthe floor in my office.
And I had no idea what to do.
It's very hard as a young researcherto figure out what to do.
And it took a while, I think.
I wrote one paper that was clearlya huge hit about why it was difficult to

(09:06):
understand exchange rates.
That surprised people a lot withRichard Macy that I would say stood up for
many, many decades and even to today.
But the paper that reallychanged my life was people were
worried about inflation in the 70s andwhat to do about it.
Kidland and Prescott had writtenthis very influential paper that

(09:31):
Baron Gordon extended, which was tryingto explain it as a game theory problem,
saying that you'd alwaysbe tempted to inflate.
And since the central bank moves second,they're always going to inflate and
try to fool people.
And the general conclusionwas that the only solution,
that's what Catalyn Prescott said,was to have a rule.

(09:56):
But that really begs the questionof if you have a powerful,
not just Trump, but a Nixon,Reagan, Lyndon Johnson,
you think that's going to stop themif the Federal Reserve has a rule?
No, they have a lot of say.
And so because I was in the Fed andI didn't go to the university,

(10:18):
I think I got an idea I don't thinkI ever would have got at a university
which was creating an institutionthat was independent.
That was a radical thought at the time.
It became.
I think it's still my most famous paper.
I couldn't get it published.
I sent it to the JP for example, andBarrow said, well, nice math, interesting.

(10:44):
But the Fed would just be a veil.
If the government wants to take it over,who cares?
This is meaningless.
And I got different levels of reactionsat different places it got rejected
at the aer, it got rejected at the qje.
And to make a long this isalready a long story shorter.

(11:06):
Larry Summers heard of the paper andhe loved it and he had become an editor
at the QJ and he said I know werejected this, but please resubmit it.
And so butthat paper I worked on really hard.
I'd be up in the middle of the nightworking on it, you know, thinking about
things and on chess I did that a lot,but I hadn't done that as an economist.

(11:29):
And I mean I think sincethen I've been like that.
That was, you know, I think that'sthe moment it was about three years in
that I be that I reallybecame an economist.

>> Jon Hartley (11:40):
That's amazing.
And central bank independence especiallyI guess newly relevant with I guess
the question about how whether or notHumphreys executor will be overturned or
not and the implications for the FederalReserve being in an independent agency.
It's an amazing just a career path and

(12:02):
clearly that that workpropelled you to Harvard where
you are now andwhere you've been for some time.
I want to start going through someof your I think key results and
big pieces of work.
A lot of these sort ofencapsulated in various books.

(12:25):
And I want to start withtalking about public debt,
given that public debt iscertainly topical right now.
In your 2009 book youcover public debt a lot.
This time is different.
With Carmen Reinhart, you alsowrote a related sequence of papers,
the American andthe American Economic Review papers and
proceedings, the Growth in a Time of Debt.

(12:48):
And there's a related JEP articleas well with Vincent Reinhart.
And you sort of argue that there's acutoff for public debt to GDP that's maybe
around 90 to 100% or so, after whichonce a country sort of goes beyond
that level of debt as a fraction of gdp,economic growth gets really bad.
And you do this with lots of history.

(13:10):
Many countries now, today,many governments around the world,
including the US are passing thatthreshold of 100% of debt to GDP.
How do you think about thoseresults in light of ever increasing
public debt today and what's your outlookfor the US and global fiscal situation?

>> Kenneth Rogoff (13:30):
So first of all,
our 2009 book really didn'thave anything about that.
What it did have was the firsthistorical data set on public debt.
It was a archival discovery thatyou could do it there since
been we we gave all our data sources andthe IMF cloned it pretty quickly and

(13:52):
some others have sothat was something just new.
Nobody had longer term data that,
that might make your headexplode to think that's true.
But it was.
The IMF didn't keep it.
They didn't.
And even, even having OECD countries,those are the richer countries,
they didn't keep it going back very far.

(14:16):
Long story.
So the 2010 paper, which, the first onewas just a short weekend conference note,
that was what the AEA papers andproceedings were back then.
We, we looked, we didn't say that whendebt hits 90%, your growth suddenly slows.

(14:38):
We didn't have any statistical test.
We just divided debt intobuckets over 20 countries and
just said the periods whereyour debt's really low,
growth is on average higherthan when your growth is.
Debt is really high andbetween 90% and below 90%.

(15:00):
It's about a 1% difference.
But the stupid interpretation of that,which some people did, and
I would say particularly people like PaulKrugman who would use it as a character,
made it sound like when you go from89 to 90, your growth drops by 1%.

(15:21):
And we actually very quickly wrote things.
No, that doesn't mean when you godriving at 55 miles an hour and
you go from 56 miles an hour,you're going to crash.
But, but cars going really faston average have more things.
We use the example of cholesterol.
When Your cholesterol is 199 andgoes to 201, it doesn't mean anything.

(15:45):
But on average, if you take everybodywith high cholesterol and everybody
with low cholesterol, and so I thinkthat result has held up very, very well.
There's 15 years of research on it, butthere was this whole people just felt,
well that you must be in favor ofausterity if you think debt is a problem.

(16:07):
And, of course,I should think it's a book by Ezra Klein,
I don't know if you've seen it abundanceor read it where he's progressive,
but kind of comes to the realization thatprogressives don't understand trade offs.
If you want to protect some little dartfish, but it means Los Angeles is going

(16:28):
to burn down because you don't get waterthere, you might think about it and
that actually this whole austeritynarrative, stimulus good.
We say that very clearly,owing a lot of debt bad.
But they couldn't accept the trade off.
And sothe argument was there is no trade off.

(16:49):
It's a free lunch.
And that's been made by the modernmonetary theory people that you probably
mocked on your podcastat one time another.
But it's not that far from secularsummer secular stagnation.
Certainly not that far from what Blanchardsaid in his presidential address and

(17:10):
many others where they were sort ofarguing interest rates are just going
to drop and drop.
So why are we worrying about this ifyou never have have to pay the piper,
you don't care about debt.
But of course, if you look at a longerhistory of interest rates, and
that's a major theme of my book andmy I have an AER paper from August and

(17:33):
2024, Barbara Rossi and Paul Schmeltzing.
If you look at a long period, you havethese periods where the rates are high,
you have these periodswhere the rates are low.
But there's quite a bit of reversion tomean you always should have expected that.
And if you don't mind my just goingoff on this a second lot longer,
this whole notion stimulus is wonderful.

(17:54):
We have to have more and more.
Anytime you're not doingstimulus as austerity and debt,
you shouldn't care if it's high or low.
And it's like I've said to some of them,okay,
let's say you think that it's stimulus.
They think it's fantastic that you know,the Keynesian multipliers too.
I mean, depending on when you use it.

(18:15):
And I understand, you know, use it,you need to use it at the right times.
Unlike when Biden used a lotof stimulus during a boom.
But on average it's high.
It's very good to have ammunition.
So I said, well, okay,suppose there's a debt fairy and
they wave a magic wand andour debt in the United States,

(18:37):
instead of being 121% of GDP,is 60% of GDP.
Just suppose, and the debt fairy says forthe next 30 years, knock yourself out,
you can do stimulus,an extra 2% a year for the next 30 years.
And of course their progressiveheads explode because it's so
wonderful to be able to do the stimulus.

(18:58):
And of course, you know,if they step back a second,
what it is is they think it doesn'tmatter if the debt was 500% or 1000%.
But I mean I think a lot ofresearch shows that's wrong,
that the debt interest ratedoes rise as your debt goes up.
So I, I think this sort ofperverse era where everybody

(19:19):
thought it was a freelunch has now passed.
At least you were Goldman on Wall Street.
I don't know about in academics.
It's still, there are a lot of peoplewho think this is an aberration,
it's going to go back down.
But I mean I think that's, that's sort ofthe central question around US debt today.
If you believe that this is an aberrationthat real interest rates are high and

(19:42):
you're not persuaded by the argumentthat as debt grows the interest
rate goes up as the world needs,it's an unfortunate position of
needing to remilitarizethe interest rate goes up.
Populism makes the interestrate go up a lot of factors.
If you're not persuaded by that and
you think demographics is destiny,although Ross C Schmaltzy and

(20:07):
I look at demographics over longerperiods and it just doesn't work for
explaining the real interest rate,then you shouldn't care.
But I think we've arrived at thismoment where the interest rate has
normalized after a long period ofa radically declining post Volcker,
I mean, the Reagan Volcker periodhad this huge interest rate rise.

(20:32):
So I see the US fiscal situationas very precarious at the moment.
Even if we had a normal deficitof 2% of GDP instead of 7 or
8% wherever we're headed.

>> Jon Hartley (20:47):
I want to talk a little bit more about interest rates and
monetary policy.
So maybe a little bit more about shortterm interest rates for a moment.
You wrote a book in 2016,the Curse of Cash.
You advocated forabolishing paper currency in part.
One of the reasons you gave is that ittended to be used in criminal activity or

(21:08):
at least higherdenominations of banknotes.
And you sort of argued that,
you know, it also makes sense in termsof implementing negative interest rates.
It makes that easier to do because ifthere's always this option that you
can put money in cash,you can lock in a 0% interest rate.
And so I think, I know Sweden sort oflargely abandoned paper currency, but

(21:30):
I think that's one of the few cases.
I'm just curious, does the recent alsomaybe the recent backlash against central
bank digital currencies not sort of cutagainst the idea that paper currency maybe
should be banned?
One of the reasons why I think centralbank digital currencies are generally very
unpopular.
If you look at some of these surveys,

(21:51):
people don't want this idea thatthere's some digital currency.
That's the only option that can sortof be maybe taken away from them.
If you had some sort of a malevolentgovernment or dictatorial government.
What about, you know, the, I guess,you know, to just sort of make the counter
argument in favor of maybe,you know, keeping cash legal?

(22:12):
What about the people who say, you know,the ability to have cash on hand,
whether it's under a mattress or whatever,
sort of a fundamental freedom meant tosort of check the power of governments.
I'm curious what you say to sort of those,some of those counterarguments to those
that are sort of in favorof getting rid of cash.

>> Kenneth Rogoff (22:29):
Well, so my book's a little more subtle than abolishing cash.
It is phasing out large notes andthen, and
over a long, long period andseeing where you stand then.
And you know, a huge percentage of allcash is held in large denomination notes.
In the case of the United States,about 80%.

(22:49):
It's $100 bills.
And of course that's comparedto when I wrote the bill.
The hundred dollar bills is like a $75bill now thanks to all the inflation.
So that's good.
I argue that a huge percentageof this is used to evade taxes.
And I think that's true.
And a lot of the people that are reallyangry about it want to evade taxes.

(23:12):
They think they shouldn't have to pay.
And okay, I don't want to have, you know,
infinitely high taxes, butwhen some people aren't paying taxes,
people with the same income who don't havea cash business do have to pay taxes.
I, I think that, you know,we, we absolutely,
the privacy issue is absolutely an issue.

(23:33):
But I think into the foreseeable future,if you had tens and twenties,
like, what are you planning on doing thatrequires you to have $100,000 in cash?
And I think we can debate that,but it's like,
you know, there's, there's againa trade off in the privacy question.
I was criticizing progressives before.

(23:53):
I think I'm criticizing conservatives now.
Privacy is a right up to what point?
Like Is it your right not to pay taxes?
Is it your right to do major,you know, violations of the law and
a few thousand dollars, who cares?
And you know, I think, I think it isa question of whether we arrive at some

(24:14):
kind of digital currency that peoplecan use that provides some privacy.
And crypto is definitely expensive forthe government to trace.
And crypto competes heavilyin the underground economy.
Now I have papers on this andI talk about it a lot in my book.
In fact, you know, the dollar,
the underground economy isprobably 20% of global GDP.

(24:37):
Again I have another paper on that andagain do surveys of it.
And the do that's a bigpart of the dollar.
The, the paper currency dollarsmarket is the underground economy.
And the dollar is losing in that already,that there ways crypto is more efficient.

(24:58):
So you know the privacy issue,it's a question of balance.
Where do you want to strike things?
So on the negative interestrates is a different topic.
You actually don't need to abolish cash.
You don't even need to change anythingto have net negative interest rates.
And the Europeans andthe Swedes didn't go this route.

(25:19):
They didn't,they didn't do it the right way.
And you can have very negative interestrates by having an exchange rate between
cash and bank money and havingthe exchange rate depreciate over time.
So if you're holding cash, the value ofit when you take to the bank, the bank,
meaning the Federal Reserve goes downover time whereas your bank money where

(25:42):
you're getting a negativeinterest rate doesn't go down.
So that idea has actuallybeen around since the 1930s.
I discuss it in the book.
But in general, if interest rates weare getting at the zero bound and
we were to get in anothersituation where we really wanted

(26:06):
to use monetary policy tostimulate the economy.
But I think negative interestrates have just not been tried.
You have to have the legal changes.
But we have very negative realinterest rates obviously.
I mean that happens all the time.
German bonds have had negativeinterest rates more from the market

(26:30):
than ECB policy.
So I think it's an open question.
In fact we have a review comingup now of the Federal Reserve.
After every five years it doesa monetary strategy review.
I don't know if you're,are you following that by the way?

>> Jon Hartley (26:45):
So absolutely, absolutely.
It's talking about at length at the HooverMonetary Policy Conference just last week.

>> Kenneth Rogoff (26:51):
And so what do you think about what they did in 2020,
the asymmetric policy?

>> Jon Hartley (26:57):
Yeah, the flexible average inflation targeting thing is, in my mind
it was built for the prior 10 years, inthe era of being at the zero lower bound.
And the biggest struggle in the minds of Ithink some central bankers was trying to
get inflation above 2%.
And at the time that wasseen as a huge issue.

(27:18):
Now with sort of a few years ofway higher than 2% inflation,
I feel like maybe there's going tobe some calibration away from that.
And it was asymmetric, and
there's Bernanke's sort of temporaryprice level targeting idea.
Yeah, I mean all, all very interestingquestions, but yeah, I think,
I guess there's a good question about,

(27:40):
I mean it's very interesting thatthe Fed never went negative.
And my understanding isthat Bernanke did so
not to disrupt money market ingeneral money market funds,
but the ECB did go very negative andI mean to a point in the sense that
they were constrained by I guessthis fact that there's still.

>> Kenneth Rogoff (28:01):
They hadn't dealt with cash,
they hadn't dealt with preventingfrom people from hoarding cash,
which the ideas I have andthe other ideas I talk about would.
So they never.
And because they hadn't dealt with it,it made the negative interest rates less
effective because everybodyknew they couldn't.
There still was a lower bound.
It just wasn't the same.

(28:22):
Well, I mean, I think, I think ifwe run in that situation again and
at least a lot of people your agedoing research don't agree with me and
think interest rates are just goingto go down and down and down and
we haven't seen anything yet.
I mean, I think you have to thinkabout negative interest rates and

(28:43):
we have to rethink that.
It would involve making some,
I think fairly minor institutionalchanges to be able to accommodate it.
So if they don't do that, if you don't dothat, it causes all kinds of distortions.
But if you do that,it's seamless at least.
I mean, I, in my, and soI was a discussant at the 2020 and

(29:04):
they didn't, I actually spoke at yourHoover Monetary Conference and they let,
they welcomed having metalk about negative rates.
But the Fed was like,please don't, you know, like.
But what the policy they came upwith was a disaster in the end.
And I think they were influenced by itbecause they didn't feel they had a tool

(29:28):
for what happens ifinterest rates fell low.
So we can come back to that.
But I, I regard that As a very live issue,not near term.
Because I agree the inflation we'vehad the last few years has sort
of disabused anybody of the ideathat inflation's always zero.

(29:48):
But it certainly could come back.

>> Jon Hartley (29:52):
I agree.
I mean, I do think that there's a lotof controversy and, and need for
retrospection when it comes to flexibleaverage inflation targeting or, or
even forward guidance.
I mean, how useful is forwardguidance now when you know,
we're no longer at the zero lower bound?
And so it's at least for now.

>> Kenneth Rogoff (30:12):
But I thought everything they did at the Fed was kind of
meaningless.
So first of all, forward guidance.
And Larry Summers has said that, I'vesaid it too, but Larry Summers has said,
I say in my book, butLarry Summers said it very eloquently,
that the only people who are listeningto the forward guidance is the Fed.
And it ties their hands.
The market pays zero attention.

(30:34):
And the flat and the thing ofaverage price level targeting, well,
okay, but when the Fedovershoots with high inflation,
where's the low inflationthat makes up for it?
I mean they forgot aboutit the second it happened.
It's not credible.
Political economy matters at the Fed andit's not credible.

(30:58):
I thought while we're at it, I thoughtquantitative easing after the financial,
initial wave of the financial crisisended was absolutely a bad idea.
Like it's just smoke andmirrors because the treasury owns the Fed.
The Fed is buying the Treasury'sdebt with the one hand,

(31:18):
it's issuing short term debt withthe other hand, which the treasury owns.
And it just gets really nonsense, and
I think led just to somedistortions in markets.
But in some sense there was, you know,
this feeling that theywanted to do something.
And the Fed's still paying the price forthat today.

>> Jon Hartley (31:39):
Yeah, I mean, I guess there's some argument, you know,
I've done some work a number of years agojust like an event study looking at, you
know, the announcement effects at leastof quantitative easing, announcements of
regular, you know, Treasury MBS purchasesand so forth and in across countries when
emerging market central banksaren't doing this during COVID too.

(31:59):
And I think there is some casebeing made that means 20, 30,
40 basis points of an effect on the 10year which I guess is simulative and
I totally agree with you that.

>> Kenneth Rogoff (32:13):
So you would get the same effect by having the treasury do
what the Fed did.
The treasury could just issue more shortterm debt and less long term debt,
it's not really a monetary policy.

>> Jon Hartley (32:25):
Absolutely, in fact I have a separate debt management paper
called Does GovernmentDebt Management Matter?
And it kind of makes the case that maybethe treasury should be issuing more short
term debt.
If there's all this demand forshort term safe assets,
maybe the treasury should be doing that.

(32:46):
Anyways, separate discussion, butI think the biggest challenge to me just,
and I think it's maybe more of a politicaleconomy challenge which is like
the quantitative easing.
It's just something that the Fedcan't seem to get rid of in the sense
that anytime basically potentialmarkets and banks adapt to this new

(33:07):
environment and then when they try andrun down the balance sheet,
you hit something like the repo crisisof 2019, suddenly they revert back.
And so maybe if there was the right kindof communication and the right strategy,
this could be done,
I mean maybe a Fed chair,Kevin Warsh would do something like that.

(33:28):
He's been very critical, very consistentlyvery critical of this sort of non
emergency lender, last resorttype of quantitative easing and
just buying Treasuries and remainingmortgage backed securities as well.
And so maybe, but I think it wouldrequire certainly an incredible
amount of resolve in the face of,you know, pretty significant,

(33:48):
you know,market disruptions to see it through.
And maybe that will happen, but we'll see.
I want to get to your, I.

>> Kenneth Rogoff (33:57):
Just want to say that's an example of where your background at
Goldman Sachs and I have studentswho work a couple years ago.
It's very helpful to understandthat kind of issue because you,
it's really institutional andunderstanding markets.
It's not just about,it's hard to express it with just math,
you really need to have a texturedunderstanding of markets.

>> Jon Hartley (34:18):
Absolutely, and this adaptation thing that goes on too,
it's very complicated inthe sense that how markets sort
of like certain things andlatch onto them.
And it's kind of how I guess some of thesemarkets and the prices reflect that.
I want to talk a little bit more aboutyour new book that just came out this year
in 2025 called Our Dollar, Your Problem.

(34:40):
A lot of it's on->> Kenneth Rogoff: Came out on May 6.
So it just came out and
a lot of it's on the status ofthe US Dollars of world reserve currency,
which it's been sincethe Second World War.
And some of it is also a retelling of yourown personal experience in international
economic policy,you're the IMF chief economist.
You spent a lot of time atplaces like Jackson Hole and

(35:03):
many other places around the world.
I'm curious, what are somehighlights of the book in your mind?
And what are your general thoughts onthe dollar reserve currency status?
Another topic that'svery popular right now.

>> Kenneth Rogoff (35:15):
Yeah, so I did weave in personal experiences with world leaders,
policymakers.
It's not a memoir, it's just a little bit,I think chess is in there quite a bit.
Just I wanted to give, first of all,put people in the moment,
I was there,I was a Yale student in the early 70s, and

(35:37):
we were being taught in ourunder first year course.
We were being taught in more advancedcourses, I took advanced macro.
We were being taught that Russia wasgoing to catch up and if they didn't,
they'd be 80% the size of the US theywould occupy a big part of the world.
I mean, the idea that we were going to be,you know, occupy all those

(36:00):
countries would become free andRussia wouldn't become an equal power.
That was not what people were thinking,and I sort of go over that.
I also mention that myskepticism about it,
not from any deep understanding ofeconomics, but I had lived in Yugoslavia.
That's the former Yugoslavia,which has Croatia, Serbia,

(36:24):
Bosnia, Herzegovia and Montenegro anda couple other countries.
I lived there and a long time and
they were supposed to be moresuccessful than the Soviet Union.
And the chess players wereactually worshiped there.
That was fun for me becausethat's certainly not the case in

(36:45):
the United States, andthey were privileged.
And then I go visit their apartment,which they just so
thrilled, like they wonthe lottery to get this apartment.
And it's little bigger than a bathroom,but in a bathroom plus a kitchen maybe.
Well, they don't have plumbing in a lotof these things and with cement walls,

(37:08):
colorless, and they think they'reat the Ritz Carlton living in it.
And just I don't think we shouldever believe it, but we did.
And so, and then I get the Japan,goodness, you mention.
And we talked about Rudi Dornbusch.
I was working my first job at the Fed andRudy Dornbusch was so

(37:29):
engaged about what wasgoing to happen with Japan.
They were, I mean, he, I'm not saying thathe believed this, but he was concerned,
if they would pass us,
he would call me all the time tothink of what the Fed was thinking.
And at the Fed, we're in the 80s,
nobody talked about China,we thought Japan was taking us out,

(37:50):
Japan had higher,by some measures, per capita gdp.
Its stock market was worth more than theUnited States, incredibly, its real estate
market was worth more than the UnitedStates, even though it's a tiny island.
And I go over these, I worked atthe Central bank of Japan for a while and
go over these moments where wedid not know what was going on.

(38:13):
And I think there are ways wegot lucky to rise as far and
by that I mean to just be sodominant that we ultimately
became I think the economics of this,of course,
has only one currency, network effects.
There's nothing else to say.

(38:33):
The politics sure as heck doesn'thave that, that the Chinese,
they're going to break away, and when theybreak away, Asia is going to break away.
And that's been going on since 2015,
they're forming their own networks andpipelines and clearing.
And the Europeans don't like it either,so the it's not that there's

(38:56):
a Canadian dollar with all duerespect to Mark Carney, or
an Australian dollar,nobody cares about them.
But there'll be a few tripolar system,which back in 2005
was the consensus in academics that wewere going to have a tripolar system.
And what happened the last certainlythe ten years after that was a shock.

(39:20):
Well, Europe had the global debt crisis,China didn't move away from its peg.
And so what I argue in the book, FastForwarding a lot is we lose some space
to crypto and the underground economy,but we're going to lose market
share to the renminbi for 100% sure,because they can't live with us.

(39:43):
I mean, even if Trump is enforcing it,where other sanctions and
the Europeans will also expand.
So there the yeah,there are these network effects, but
pushing back against thisis these other effects.
And if you look at what central banks do,which is what my favorite
measure with Reinhardt andIlsitsky, it's been in retreat for

(40:07):
10 years,probably the centrality of the dollar.

>> Jon Hartley (40:13):
Well, I'm curious though.
So I have a paper published in Economics.

>> Kenneth Rogoff (40:18):
You kindly said it to me.

>> Jon Hartley (40:20):
Yeah, it's titled De Dollarization, not so Fast.
And it basically just gathers thesesame measures of the dollar that
we're used to seeing before.
And Barry andothers have published with older data.
And so if you look at, you know,these measures of the dollar, you know,
fraction of dollars in central bank FXreserves, the denomination of bonds,

(40:44):
FX transactions or trade invoicing,you updated through Covid and
through the Russian invasion of Ukraine,the $sas hasn't declined
whatsoever through those sort ofpretty big international events.
And, you know, there's also the freezingof the Russian FX reserves and
all these things.
So I guess, you know,like, sure, you know,

(41:05):
the dollar share of FX reservesis down from the early 2000s.
A lot of people like to show some of thosecharts just starting in 2000 to today.
But it's actually been at lower points,say like in the, in the 90s.

>> Kenneth Rogoff (41:17):
But that's because it felt.
That's because it,it fell after Bretton Woods.
I mean, the 70s was a big declinein the dollar share of everything,
which my book discusses why,given our debt situation and
challenges to Federal Reserveindependence, I am sort of expecting
a 70s light maybe period now, whichwill also, you know, accelerate this.

(41:42):
But, you know, it hit it.
It sort of fell becausewe were screwing up.
And then as we became more stable,it arose.
But I think the risefrom the 2000s was very
surprising given where the trends were.
That's why people point to that.

>> Jon Hartley (42:04):
I guess I'm just curious just to make a counter argument in favor
of just dollar dominance sticking aroundfor much longer than maybe we think.
I mean, if you look at like,say that the share of FX reserves in
the Renminbi that's actually fallen sincethe coven, Russian invasion, Ukraine,
but other currencies like,you know, Canadian dollar,

(42:26):
Australian dollar, New Zealand dollar,those are, are strangely ascendant.
I mean, I'm just curious,when you think about in the past,
what's led to the end of a currencyas a reserve, as reserve currency,
as a world reserve currency, it'stypically like a land war on home turf.
Like, you know, the UK andWorld War II and their experience there.

(42:48):
I'm just curious, but you.

>> Kenneth Rogoff (42:50):
You don't have,
you don't have to have the endof it to be losing market share.
You, you Typically almost the norm isthere are few currencies that are used.
I mean, the Spanish peseta was on top,but even after the Florin took over,
the Spanish peseta was everywhere,even into the, the British pound was,

(43:12):
even after World War I was still C.O.equal to the dollar.
There is a political economy.
If you just do a model, you want to haveone currency, it's hard to come out with
another thing but that sucha model has no political economy.
And the thing that is unacceptable fora lot of the world is the information

(43:34):
flow that goes through the United Statesbecause everything's in dollars.
A huge percentage of information ontransactions of all types we can see.
And I think a lot ofthe world objects to that.
If you, if you didn't have that, maybe.
But for, you know, for China,it's, it's just unacceptable.

(43:55):
And they're going to, I don't knowwhat you people say at Hoover, but
people I talk to in Washington,
I mean everybody thinks China's going toblockade Taiwan, that that's just coming.
And of course we're goingto have a big trade war and
of course we're going to do sanctions.
And in my estimation they have 2trillion in dollars indirectly and
they're, they're, you know,

(44:17):
they're going to want to be bailingout of that and they're looking to.
And it's not, it's not just about what,how they hold reserves.
That's by the way, I sometimes comparethese things you're doing to like the,
I know it's politically incorrect, butthe blind met nine blind men touching
an elephant and they each touch differentparts and see completely different things.

(44:40):
They're very small pieces, which is whyI like what central banks are doing
with their exchange rate stabilizationas a portmanteau measure.
Why do central banks need to feel theyneed to stabilize against the currency?
Why is it their reference currency?
They're aware of dollar liabilities,they're aware of, you know,

(45:01):
how much dollars are used in theireconomies or other currencies.
And by that measure it's prettystriking how it's gone down since 2015.
So we'll see.
I mean, I, I, you know, I, I don't,
it's certainly possible thatwe'll stick around, but
I would say just easily we coulddrop down to where we were in 2005.

>> Jon Hartley (45:29):
I guess I had just a few sort of lightning round questions here and
want to talk more aboutexchange rates specifically.
I mean, I guess one, on the topic ofChina, do you think it was a mistake by
the IMF to add China and other to the SDRsin 2015, knowing what we know now or.

>> Kenneth Rogoff (45:47):
Well, I mean, you want to try to bring them in, you know, as
Lyndon Johnson said, you want them insidethe tent, pissing out instead of outside.
And that has been the effort of policy.
It has not entirely worked.
But that was, that was,that was what I did.
And by the way,
we wanted their money like the IMFwanted the Chinese to give more money.

(46:09):
The Chinese have not given that muchmore money, but they're sort of courting
them and they may need them moregiven the Trump administration.

>> Jon Hartley (46:19):
It's interesting and on the World bank side of things too,
it's interesting how much they've managedto hold on as a recipient as well,
which is hard to understand.

>> Kenneth Rogoff (46:30):
Yeah. >> Jon Hartley
much richer than the typicalWorld bank aid receiving country.
Yes.There's lots of geopolitics there to say
the least.
So I guess I just want to get back to, Iguess some of the more academic questions
about exchange rates andreally in international economics.
And really, I guess my question is whatkind of progress do you think we've made?

(46:55):
Made in international economics andespecially, you know, with understanding
exchange rates in the past, say 20years or so to, you know, 20, 30 years.
I mean,PPP works over generally long horizons,
maybe not small over short horizons.
You've done some work on this.
It covered interest rate parity.
It's something that's I think taken the,at least the asset pricing macro

(47:17):
finance literature by storm in the past15 years just because it stopped working
post global after the global financialcrisis and all this bank reg.
That prevented banks from sort ofcontinuing to do this arbitrage.
But you know, we've got all theseother exchange rate puzzles,
a lot of which you've documented,say with Maurice Amsfeld.

(47:38):
Things like the consumptioncorrelation puzzle.
Why is consumption less correlatedacross countries and output?
Or there's the back of Smith puzzle why isthe correlation between consumption real
exchange rate zero.
Have we made any progress ininternational economics in your mind or
is it slowed in some way?
What's very tempting of someone of my age to say,

(47:58):
we thought of everything a longtime ago and there's nothing, but
I don't think that's true at all.
I think we actually live in a goldenage of international macroeconomics.
So, first of all, there is quite a bit ofprogress in thinking about exchange rates,
but I'll come back to that.
But would you judge finance by howwell finance economists can explain
the level of stocks,you know, or what they do?

(48:20):
No.
I mean, there's a lot ofother topics international.
So, for example, financial crises.
No one enclosed economy macrowas working on financial crises.
That was an international topic.
And people thought,it happens in other countries.
And when the financial crisis happened,the international economists had way

(48:43):
more to say the closed economy macroeconomists didn't have the right forecast.
They didn't understand things.
And I'm talking about the Fed.
Most macro economists,if you went to the big conferences,
just got it wrong again andagain and again.
I don't want to name names, butI think those of us in international were

(49:03):
all over this and, you know,we understood that.
Another topic, sovereign debt.
It is quite remarkable that we haven't hadsovereign debt crises so much recently.
It's kind of incredible.
Of course, by saying this, I'll probablymake one happen and I think, okay,

(49:25):
there'll be mistakes.
I actually think we are about to havefinancial crises again in the next decade,
given the higher real interest rates andthe greater volatility.
But I think progress in internationaleconomics has actually been a factor
in why that hasn't happened andhow you should denominate your debt,

(49:46):
particularly how you should regulateyour banking system if you want to
not have debt crises, how you whatwhere the role of reserves is.
And then on a really deep question,I consider the deepest question in
international economics is whydo countries repay their debt?
So I've worked on this a lot.

(50:06):
The late John Eden did a seminalpaper with Mark Gursovitz about this.
And there's actually been a lotof thinking about this and
progress about how to think about it.
And I would say my take on it, andthere's a nice book by Manuel Amador and
Mark Aguiar and many, many papers on this,but I get a takeaway.

(50:30):
And Mark Aguiar, I think Jeremy Bulow andI wrote about this in the early,
early 90s, butMark Aguiar sharpened it tremendously.
The basic idea being that if you'rea country and you want to borrow,
don't let, don't allow them towrite contracts in New York courts,
make them write contractsin their own courts.

(50:52):
And if you're a lender andyou want to lend to Argentina and
you want to trust the Argentine court,more power to you.
But then if Argentina wants to default,they can do it in a jiffy.
I mean they just do whatever they want andthat way countries either
don't get money or which formost of them would have been good.
Borrow money to use unproductively or theydevelop the legal infrastructure and such.

(51:18):
I promise to get back to exchange rates.
So I mean I think there'smuch more to be said.
But first of all,the issue that the exchange rate plays
a different role than wethought maybe 20 years ago,
certainly 30 years ago whenI had my book with Ozfeld,

(51:39):
that its main role is between traded and
non traded goods and there's,we have that in our book but
there's much less role acrosstraded goods because so
much is either denominated in euros,dollars or renimbi starting to.
And not in your own currencies.

(52:02):
And then of course there's the Clarkmedal when a couple years ago to Oleg at
Skokie who has these beautifulpapers with Dimitri Mukin and
I don't know that I agree with everything.
I don't wanna oversell it,but they try to.
They, they basically argue that there'sa lot of noise in exchange rates.

(52:23):
There's a lot more noise because of allthe post financial crisis regulations,
which is exactly why covered interestparity doesn't hold anymore.
The, the banks aren'tallowed to arbitrage it away.
And they argue that in facthaving a floating exchange rate
is not as useful as people thought.

(52:44):
Fascinating debates here.
I don't, I have thoughts about thatwhere I think fixed exchange rates
like Saudi Arabia has orHong Kong has, very, very dangerous.
But no, I actually think, I actuallythink it's been a very exciting period.
You're at Stanford,the project that Matteo Maggiore,

(53:04):
Jesse Schrager and Brent Naimanoversee of the Big Data Initiative
has huge progress on understandinghow things are denominated,
what people are holdingthe home bias puzzle.
There have been a lot of great theses andinternational, so no,
it's been, it's been a golden era I think.

(53:24):
And if you continue in internationaleconomics, and I hope you do,
I, I think you'll find it's, you know,
continue to find new thingsthat are exciting to work on.

>> Jon Hartley (53:34):
Absolutely, I wanna talk about, I guess one other.
This is the last question,you know, perhaps a new puzzle and
that is what I'd say is the relationshipbetween tariffs and exchange rates.
And many have written on this inthe past long ago when tariffs I
guess were a bit higher, Paul Krugman,I think Rudy Doornbush and

(53:58):
others, obviously President Trumprecently enacted some
universal tariffs on manycountries that aren't targeted
on just a few goods,as many tariffs in the past have been.
And but, but generally speaking across theboard on all goods from, well, it's not.

>> Kenneth Rogoff (54:17):
Services, just goods, which is an issue in itself.

>> Jon Hartley (54:20):
Right, but to the surprise of many, the US Dollar fell in response to
the universal tariff announcementon April 2nd, rather than increase,
which is sort of what wouldbe predicted by theory and
other past empirical evidencefrom say maybe smaller tariffs.
And typically the idea is that exchangerates were kind of this shock absorber and
that trend is basically continued.

(54:42):
So when there have been big tariffpauses announced, say I think it was
April 8th when the deliberation daytariffs were paused for 90 days or
the China tariffs being paused on May12th, the US dollar rose significantly.
And so that's sort of contrary to whattheory would predict between tariffs and
exchange rates.

(55:02):
How would you sort of explain this inyour mind if there's sort of some initial
thoughts that you have onthis sort of imperial.

>> Kenneth Rogoff (55:10):
Well, certainly looking at the 2018.
Well, let me back up.
So for the recent case,we knew they were coming.
So to sort of look at what happens whenthey're announced, you have to separate,
you know, what was unanticipated.
But I'm sure you must think this too.
I mean, the big effect was theyseemed really incompetent.

(55:32):
I mean, I am not somebody who has,has this knee jerk reaction to anytime
Donald Trump says something orproposes something, it's terrible.
I think he has, you know,he's very crude and doesn't necessarily
articulate things in the best way ormost like an economist would want.
But I think he's right aboutquite a few economic things.

(55:54):
Let me limit it to that.
But on tariffs, I mean,a lot of what he said is just illiterate.
The whole idea that current accountsare terrible for the United States,
that running a deficit is terrible,as opposed to looking at, as, you know,
subsidizing us for all this time.

(56:15):
His idea that we can industrial,we can get great manufacturing jobs back.
Hello.
You know, machines may get the jobs,but people sure as heck won't.
Not many.
Well, our manufacturing has actuallyincreased in recent years, but
it's not because of tariffs.
It's because we've had good robotics andour factories have been able to do that.

(56:39):
But farming in the 1970s,the farming was fading.
If you go back, of course, you know,100 years, everybody was in farming or
150 years.
And all the TV ads inthe election were saved.
The farmer.
They had people, you know, in farming.
Well, we're, we're a giant inagricultural, but there are no jobs.

(57:02):
And that's,that's future of manufacturing.
Okay.There are national security issues, but
that's got, that's just got nothing todo with, you know, bringing jobs back so
narrowly.
On your tariffs question, I think people,I, I mean, I think it was just.
He was incredibly incompetent.
I mean, with you, I mean, he justseemed stuck on this terrible idea.

(57:27):
It's not the tariffs that are terrible.
If he just, you said,just put in universal.
He just put in 10% tariffs,we could work around that,
especially if he cut other taxes.
And yeah, some.
I would have preferred a VAT taxto terrorist, but yeah, okay.
But the problem was all this,you know, art of the deal.

(57:47):
UK has to have free speech.
You can go on andon with these crazy demands.
So that's what happened.
And so when people see him retreat,they say, we have Trump one,
who was a pragmatist, and not Trump two,who seemed like an ideologue about this.
That's what they're looking atis this competence question.

>> Jon Hartley (58:09):
You don't think it's maybe like, I guess, a policy uncertainty thing
or, or just, I guess maybe somereallocation out of the U.S.
it's a very strange fact that Ithink that exchange rates are moving
the way they are and the dollarwould rise, I guess, in response.

>> Kenneth Rogoff (58:28):
I'm not your basic Trump derangement syndrome person.
I teach at Harvard, butI'm one of the 3% of faculty who.
I consider myself a centrist, but I wouldidentify at Harvard as conservative.
But on this one, just the faster he canretreat on this policy, the better.
It's, it's not.

(58:49):
Uncertainty is a very generous way to putit, but it created a lot of uncertainty.
You don't know whatthe tariffs are going to be.
You're sending a ship, you know,from one place to the other.
You don't know what the tariff isgoing to be when you get there.
So if they can settle it, even on 20%tariffs, it'll be a big step forward.
And I think the markets just encouragewhen they see Trump the pragmatist,

(59:13):
which means on this case claiming victory,saying he meant it all along, but
basically doing course correction, whichI think is one of his good qualities,
is being pragmatic when things don't work,adjusting.
And I hope that's what we're seeing here.

>> Jon Hartley (59:30):
Okay.
I really want to thank you for coming on.
This has been an amazing conversation.

>> Kenneth Rogoff (59:34):
Thank you. Well, thank you for having me on.
And again, congratulations onthe great success of this podcast.
Great to be on it.

>> Jon Hartley (59:42):
This is the Capitalism and Freedom the 21st Century podcast,
an official podcast of the Hoover EconomicPolicy Working Group where we talk about
economics, markets and public policy.
I'm Jon Hartley, your host.
Thanks so much for joining us.