Econintersect: Actually the two well-known economists have made at least two statements in reaction to the paper published by UMass Amherst professors who published a research paper that found the iconic paper by Carmen Reinhart and Kenneth Rogoff which identified a significant economic burden of government debt exceeding 90% of GDP.
The first statement appeared in The New York Times late yesterday (16 April 2013). In this statement R and R are quite defensive and identify other published research, including their own, that has corroborated their 2010 paper.
After burning some midnight oil a second statement was issued, summarized by Chris Cook in the Financial Times. In this they clearly confirmed their recognition of the Excel blunder but still contest the charge that they used selected data.
An interesting point in the discussion was highlighted by Megan McCardle at The Daily Beast. That point involves the justification of the Reinhart and Rogoff result concluding a tipping point for government debt at a certain ratio of debt to GDP (90%). There are two specifics here:
- The conclusion appears to depend on the use of median results rather than mean results. This should lead to some further discussion.
- The conclusion is changed if omitted data from Australia and New Zealand is included. McCardle suggests that there is mitigation of the omission:
That said [sensitivity to New Zealand], Ireland, Greece, etc do seem to offer clear cases of a tipping point where things suddenly get really gnarly, and by roughly the mechanism that Reinhart and Rogoff suggest in their paper: a debt crisis which triggers a fiscal contraction. Note that if these countries weren’t in the eurozone there wouldn’t even be a question of whether they should do austerity; or rather, the market would quickly answer that question in the affirmative by refusing to lend them money. So for now I’m going with “there is a tipping point, but it’s probably country and situation specific, and it’s hard to know where it is.
What McCardle and others are just not discussing is the difference between countries sovereign in their own currency and those that are not.
There is a lot more to be discussed in this matter.
Sources:
Researchers Find Problems with Reinhart-Rogoff Data (Mike Konczal, Next New Deal, 16 April 2013)
- Response From Reinhart and Rogoff (The New York Times, 16 April 2013
- Reinhart-Rogoff recrunch the numbers (Chris Cook, Financial Times, 17 April 2013)
- Rogoff and Reinhart Respond (Megan McArdle, The Daily Beast, 17 April 2013)
