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.