(Special Thanks to MBA Center)

Associate Professor Roberto Rigobon delivered lectures on the US recession and financial contagion, and inflation and monetary policy to Tsinghua International MBA (IMBA) students from 9-10 October 2008.

For first session, which was on crisis contagion, Rigobon started from basic accounting principles, showing how banks go bankrupt during a bank run. He then brought in contagion theories, including those focusing on trade, multi-equilibrium and financial markets. The session built up to a discussion on how to measure financial contagion, in order to better understand the implications. Rigobon generally viewed that crises were cyclical in nature; rather than enforcing strict market regulations, governments should take pragmatic steps to manage crises. His overall take was that the financial liberalization still brought net benefits for economies over time, as compared to narrow banking systems as in the past.

The second session was on inflation and monetary policy. Professor Rigobon elaborated on the methodology of calculating inflation, and how monetary policy was commonly used to control inflation. However, he pointed out that inflation indices were inherently skewed towards reflecting higher income households’ situations due to the bias in the basket. Using research data that spanned 60 countries over 10 years, Rigobon showed that the effects of price increases varied across different income levels in all countries, with the greatest impact felt by lower income households. He stressed that it was thus crucial to go beyond just the inflation index, and to actively monitor distributional impact and undertake inflation measures in a targeted manner.

Professor Rigobon teaches international economics, monetary economics and development economics at the MIT Sloan School of Management. An initial paper on his ongoing project, the Billion Price Project (BPP), will be published in November 2008. This project involves the monitoring of daily prices of different household goods to provide data for testing theories on price flow-through and adjustment speed. Rigobon has won the "Teacher of the year" award trice at MIT.

Professor Rigobon’s lecture was part of a series of lectures by four visiting professors from the MIT Sloan School of Management for the semester. Tsinghua and the MIT Sloan School have collaborated closely to build up Tsinghua’s IMBA program. The two schools also jointly organize forums and promote student collaboration through initiatives like China Lab.