Bernhard Harms Prize Award Ceremony 2008

The Bernhard Harms Prize 2008 was awarded to Professor Kenneth Rogoff from Harvard University in a ceremony held at the Kiel Institute on October 7, 2008.

Kenneth Rogoff is one of the world´s leading economists in the area of International Finance and Macroeconomics, as Dennis Snower, President of the Kiel Institute pointed out in his laudation. In addition to Rogoff´s many pathbreaking contributions to research which are published in the most renowned journals, he stands out as an economist who does not limit himself to the academic arena but actively seeks to apply insights from research to economic policy making. Snower mentioned in particular Rogoff´s function as Chief Economist of the International Monetary Fund in the years 2001-2003, and his role in the present discussion about the stability of the international financial system where Rogoff could be considered as a “ one-person think-tank” whose views are followed closely all around the globe.

Snower also emphasized Rogoff´s contribution to the teaching of economics. His textbook “Foundations of International Macroeconomics ” which he wrote together with Maurice Obstfeld has established itself as the leading textbook in the field and is now used by students all over the world.

In his Bernhard Harms Lecture “ Exchange Rates in the Modern Floating Era. What DoWe Really Know?” Kenneth Rogoff pointed out that the basic results of his 1983 paper with Richard Meese stand up remarkably well- it is still extremely difficult to forecast exchange rates. This result holds despite a number of advances that have taken place since then, such as the proliferation of new floating currencies, the maturation of the floating rate period, the deepening of financial markets, and the development of more sophisticated econometric tests that make use of today’s more powerful computing possibilities. To the extent that there is any forecasting power, the most promising models are those based on purchasing power parity or the current account, although it must be noted that these mainly predict the real exchange rate, rather than the nominal exchange rate. Finally, it should be noted that panel methods help in exchange rate forecasting, albeit mainly by allowing better estimation of nonstructural factors such as shift parameters.

In the subsequent discussion, Rogoff addressed the current financial turmoil. He expressed concern that governments still underestimate the size of the total costs that are associated with the present crisis. He thinks that for the US the total cost to the financial system will be two or three times higher that the recent recue package of the 700 bill. dollar. He expects that the financial crisis will result in a much stricter system of regulations which will reduce the role of the US as the world´s financial center. In the very long-run, China could replace the US as main financial center.