I’m pretty sure that the Reinhart and Rogoff “study” is the worst empirical research ever undertaken.... Their work was ideologically-driven: they wanted to stoke the deficit hysteria used as a justification for austerity....
A new IMF paper, “Debt and Growth: Is There a Magic Threshold?” by Andrea Pescatori, Damiano Sandri, and John Simon ... does a pretty good job of laying out the issues without the ideological bias of R&R. The authors use a data set that is less questionable, focusing on IMF member nations with data back to 1875. To take account of the possibility of reverse causation (slow growth leads to higher debt ratios), they look at longer periods of correlation. In other words, they see if high debt ratios (say, above 90%) remain associated with slow growth for years into the future. In addition, they distinguish between trajectories (does a country with a high debt ratio have a rising or falling debt ratio) to see if that makes a difference for the correlation. They also do some adjustments for “outliers” that affect averages (note that the R&R results depended strongly on outliers as well as math errors they made in their calculations).
What they find is that there is no “magic threshold” for the public debt ratio beyond which growth suffers. So far as their study goes, I think what they’ve done is a model for honest empirical work. Here is a quick summary of the main findings:
Economonitor — Great Leap Forward
New IMF Paper Shows Yet Again that Reinhart and Rogoff Results Are Erroneous
L. Randall Wray | Professor of Economics, University of Missouri at Kansas City
L. Randall Wray | Professor of Economics, University of Missouri at Kansas City
3 comments:
And it's the even the neoliberal-loving IMF saying this!
It's beyond serious debate that the R&R paper and it's conclusions are nothing more than nonsense.
Yet, they still continue to enjoy the limelight.
I wonder what it feels be like to be covered in teflon?
In most respectable middle class professions, proven incompetence is not normally a problem. In the UK, it’s almost unheard of for teachers to be sacked for incompetence. And where doctors are found to be incompetent, they are barred from carrying out their trade, but only for a matter of months. Normally they’re allowed to go back to killing patients after a few months.
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