I just learned that Rudi Dornbusch has died. He had been ill for a long time, but it's still hard to believe.
I'll probably want to say more in a more carefully thought-out post, but this is for those who want some sense of who he was and why he mattered.
Rudi was, first of all, the economist who brought international monetary economics into the modern world. The workhorse of pre-Dornbusch open-economy macro, the Mundell-Fleming model, was a fine thing, and is still the first thing most of us reach for when we need to ask what happens when you cut interest rates or increase spending. But it didn't capture the volatility of a floating-exchange-rate world, the way currencies can soar or plunge not because big things have already happened, but because big things are expected to happen.
Rudi's famous "overshooting" paper changed all that; it led you into a world in which today's exchange rate is mainly determined by what people think will happen in the future. He also made the crucial point that the lags in the exchange rate's effect on the real economy were what made it possible for the rate to bounce around as much as it does. The specific scenario of overshooting that he used to put the model through its paces hasn't turned out to be that big a story in real life - but the mark of a really seminal insight in economics is that it outlasts the specifics of the original question, and Rudi's "Expectations and exchange rate dynamics" has met that test a thousandfold.
There was much more to Rudi's academic career than that, of course. My particular favorite was his 1977 paper with Fischer and Samuelson about the Ricardian trade model - two centuries of international economics, compressed into a single luminous paper. But let me move on.
The second key thing about Rudi was that he was one of the great economics teachers of all time. He attracted the best and the brightest students at MIT at a time when MIT had the best and brightest anywhere - and he attracted quite a few who took the Red Line down from Harvard too. Some influential teachers turn their students into Mini-mes, diminished clones of themselves; Rudi had the knack of inspiring students to pick up his enthusiasm and technique, but find their own paths. In my generation almost everyone in macro or international who has since risen to some reputation was a Rudi Dornbusch student - I'm afraid to start naming them because I'm sure I'll make some crucial omission. And let's not forget that Rudi trained a lot of reformist future finance ministers, too.
Lastly, Rudi largely invented the modern role of academic economist as active policy participant. I know that's unfair to some older economists, but the way Rudi moved back and forth between cutting edge analysis and concrete, detailed advice to countries was, I believe, something pretty new. The only negative was that his ability to function happily on 3 hours' sleep, and to get those 3 hours sitting up, at any time of day, set a precedent that I at least could never match.
How can I summarize Rudi's influence? When I first got into international economics, in the early 1970s, it was a pretty dreary field - one in which too many academics were ivory-tower types preoccupied with doctrinal issues, and one notably lacking in Americans - we didn't think relations with other countries were important. By the 1980's international was an exciting field, in which innovative theory and current policy issues interacted, and it was a field that attracted many of the best young American economists. And the single biggest reason for that change was Rudi Dornbusch.
Originally published on the Official Paul Krugman Site, 7.26.02