Rudi Dornbusch's death on July 25, at age 60, took a great economist and exceptional human being from us.

Rudi was born and grew up in Krefeld, Germany. He was an undergraduate at the University of Geneva and completed his Ph.D. at the University of Chicago in 1971. He taught at the University of Rochester from 1972 to 1974, before returning to the University of Chicago as Associate Professor in the Graduate School of Business in 1974-75. In 1975 he accepted an offer from the MIT Department of Economics, where he taught until his death.

Both the subject and style of Rudi's early work reflected the influence of his thesis adviser, Robert Mundell. The topic was exchange rates, output, and interest rates; the style was elegant and deceptively simple, with complex models reduced to the interaction of two curves. For some time, indeed, such diagrams were known as "Dornbusch diagrams". Many of these early articles are collected in his classic book Open Economy Macroeconomics, published in 1980.

In 1976, soon after coming to MIT, Rudi wrote his most famous and influential article, "Expectations and Exchange Rate Dynamics", on the overshooting of exchange rates. The exchange rate fluctuations that came about following the shift to flexible exchange rates in 1973 were surprisingly large - far greater than fluctuations in domestic prices - and the question was why.

Rudi provided a simple explanation. Price level and the level of output are "sticky", that is, they change only slowly. When a shock hits the economy, it is initially absorbed by interest rates and the exchange rate. Gradually the impact of the shock is transferred to output and domestic prices, and the exchange rate moves towards a new equilibrium.

The "Dornbusch result" is that, in this process, the exchange rate typically overshoots its long run value. Because it overshoots, the exchange rate fluctuates more than the price level. As Ken Rogoff, the current IMF chief economist who studied under Rudi, commented on the 25^th anniversary of the article's publication: "The `overshooting' paper ... marks the birth of modern international macroeconomics."

Even as he continued to produce outstanding theoretical articles, Rudi became interested in policy issues. He became one of the outstanding policy economists of our time, displaying the same rare talent demonstrated in his theoretical work: the ability to extract the essence of a complicated problem and explain it in terms that made it appear simple.

He worked on a range of problems, typically the major international and national economic issues of the day, drawing on his knowledge of economic history to illuminate the present. For example, he applied the lessons of the dissolution of the Austro-Hungarian empire to the break-up of the Soviet bloc.

Among his policy papers, the most famous is a 1994 paper that predicted Mexico's peso crisis, one of many papers on Latin America's economic problems. Another that warrants rereading is his 1990 paper "Macroeconomic Populism", which accurately depicts a temptation to which policymakers in Latin America and other countries often used to succumb.

As his policy interests grew, Rudi's fame spread. He was an indefatigable traveller, speaker, and writer, and a frequent columnist. In his more popular articles, in his columns, and on the podium, his wit and the speed of his mind made him a formidable presence. He was one of the finest debaters and polemicists in the profession.

He did not shy away from stating his views, often reflecting the advice of Keynes: "Words ought to be a little wild for they are the assault of thoughts on the unthinking". At various times he was persona non grata to the authorities in a number of countries after characterizing either their policies or their behaviour in ways they did not appreciate. It did not help that he was more often right than not.

Despite his public persona, Rudi was an excellent confidential policy adviser. When I was in the IMF, I often called him to discuss a difficult situation. He would talk as long as necessary, and his advice was always thoughtful and nuanced, providing insights no one else had seen.

For a short time, Rudi thought about joining the Clinton administration. Fortunately he did not, because he had little patience for bureaucracy, long meetings, and the need to toe an official line. His comparative advantage was on the outside, where he was free to develop his insights and express his views.

Rudi was also a spectacularly successful teacher. As a thesis adviser, Rudi had few peers. Every outstanding American international macroeconomist who went to MIT, among them Jeffrey Frankel, Paul Krugman, Maurice Obstfeld and Ken Rogoff, was Rudi's student. Outstanding students of Rudi can be found all over the globe, many as policymakers. In their devotion to their teacher and friend lies the greatest compliment to his teaching and his mentoring.

I had the good fortune to collaborate with Rudi in writing two textbooks and several articles. One textbook, Macroeconomics, sold well over a million copies worldwide and gave me as much satisfaction as anything I have done in my professional life. Rudi felt the same way.

Rudi lit up any group in which he participated. He was among the most talented of men, and the warmest, generous with his time and himself, available for students and friends whenever they needed him. He fought his terminal cancer for over 18 months, never complaining, always expressing optimism that the latest experimental treatment would work. When he was finally forced to take to his bed, he said that he hoped his friends would remember him as he had been, not as he was at the end.

That they will.

Copyright: Project Syndicate, August 2002