Econintersect: Discussion of the Reinhart and Rogoff 2009 and 2010 work that has been much cited for justifying imposition of austerity to resolve imbalances in the Eurozone has continued to come under criticism following the publication of the work of an economics graduate student at the University of Massachusetts, Amherst. Most recently the student himself, Thomas Herndon, has weighed to answer the responses made by Reinhart and Rogoff to the paper he and co-authors Michael Ash and Robert Pollin published a week ago.
First, here is the abstract of the HAP paper:
Herndon, Ash and Pollin replicate Reinhart and Rogoff and find that coding errors, selective exclusion of available data, and unconventional weighting of summary statistics lead to serious errors that inaccurately represent the relationship between public debt and GDP growth among 20 advanced economies in the post-war period. They find that when properly calculated, the average real GDP growth rate for countries carrying a public-debt-to-GDP ratio of over 90 percent is actually 2.2 percent, not -0:1 percent as published in Reinhart and Rogoff. That is, contrary to RR, average GDP growth at public debt/GDP ratios over 90 percent is not dramatically different than when debt/GDP ratios are lower.
The authors also show how the relationship between public debt and GDP growth varies significantly by time period and country. Overall, the evidence we review contradicts Reinhart and Rogoff's claim to have identified an important stylized fact, that public debt loads greater than 90 percent of GDP consistently reduce GDP growth.
RR made two responses within 24 hours, which were reported by GEI News. They acknowledged some errors in handling of their spreadsheet data, but maintained the errors did not change their final conclusions. They specifically defended their impartial handling (and selection) of data and the validity of their conclusions.
Some of their fellow economists are not letting the review of the RR work end with that.
And neither is the student-researcher who started the entire discussion. Herndon had an article at Business Insider 22 April 2013 which challenged some of the RR responses:
- The core conclusions are clearly shown unsound by the HAP work.
- Debt-to-GDP ratios do not show any certain threshold making a meaningful impact on growth.
- Herndon specifically indicated that no negative motives were imputed to RR.
Other economists have the following comments.
James Kwak emphasized the sensitivity of the Reinhart and Rogoff results to small changes in the data set, suggesting the analysis was not "robust".
"It’s even more disappointing to see researchers overlooking these well-known, obvious problems – for example the lack pf precision and sensitivity to data errors that come with the reliance on just a few observations – to oversell their results."
Arindrajit Dube posted an analysis indicating higher debt to GDP ratios resulted from economic slowdown, not the other way around. The causation of slowdown because of debt was a widely held interpretation of the RR work.
But from a data point of view, the exclusion of the Post-World War II data is particularly troublesome, as that is driving the negative results. This needs to be explained, as does the weighting, which compresses the long periods of average growth and high debt.
R&R's work and its derivatives have been used to justify austerity policies that have pushed the unemployment rate over 10 percent for the euro zone as a whole and above 20 percent in Greece and Spain. In other words, this is a mistake that has had enormous consequences.
Bill Mitchell also questioned the unemployment impacts and also wrote:
R&R are content to conflate nations that operate within totally different monetary systems (gold standards, convertible non-convertible, fixed and flexible exchange rates, foreign currency and domestic currency debt etc).
They seem oblivious to the fact that there can never be a solvency issue on domestic debt issued by a fiat-currency issuing government irrespective of whether the debt is held by foreigners or domestic investors.
And almost three years ago Yeva Nersisyan and L.Randall Wray observed that the correlation and causation relationships being inferred from the RR work were invalid.
- The Grad Student Who Took Down Reinhart And Rogoff Explains Why They're Fundamentally Wrong (Thomas Herndon, Business Insider, 22 April 2013)
- Does High Public Debt Consistently Stifle Economic Growth? A Critique of Reinhart and Rogoff (Thomas Herndon, Michael Ash and Robert Pollin, Political Economy Research Institute, 15 April 2013) Corrections to the paper are located here.
- Reinhart and Rogoff Respond (GEI News, 17 April 2013)
- One More Comment on RR and HAP (Andrea Terzi, GEI Opinion, 20 April 2013)
- Fatal Sensitivity (James Kwak, The Baseline Scenario, 19 April 2013)
- Empirical Methods and Progress in Macroeconomics (Mark Thoma, Economist's View, 17 April, 2013)
- Guest Post: Reinhart/Rogoff and Growth in a Time Before Debt (Arindrajit Dube, Next New Deal, 17 April 2013)
- Researchers Find Problems with Reinhart-Rogoff Data (Mike Konczal, Next New Deal, 16 April 2013)
- How Much Unemployment Was Caused by Reinhart and Rogoff's Arithmetic Mistake? (Dean Baker, Center for Economic and Policy Research, 16 April 2013)
- Elementary misuse of spreadsheet data leaves millions unemployed (Bill Mitchell, billy blog, 17 April 2013)
- Does Excessive Sovereign Debt Really Hurt Growth? A Critique of This Time Is Different, by Reinhart and Rogoff (Yeva Nersisyan and L. Randall Wray, Levy Economics Institute, June 2010)