Are Reinhart and Rogoff Right Anyway?

One more thought: In their response, Reinhart and Rogoff make much of the fact that Herndon et al. end up with apparently similar results, at least to the medians reported in the original paper:

Screen shot 2013-04-18 at 4.20.55 PM

So the relationship between debt and GDP growth seems to be somewhat downward-sloping. But look at this, from Herndon et al.:

Screen shot 2013-04-18 at 4.18.02 PM

Yes, we still have that downward slope. But two things:

1. There’s no cliff at 90 percent, which was the central finding of the original paper. This is the second sentence of that paper:

“Our main result is that whereas the link between growth and debt seems relatively weak at ‘normal’ debt levels, median growth rates for countries with public debt over roughly 90 percent of GDP are about one percent lower than otherwise; average (mean) growth rates are several percent lower.”

2. Aren’t we only supposed to be interested in empirical results that are significant? What the figure from Herndon et al. says, in their words, is this:

“Between public debt/GDP ratios of 38 percent and 117 percent, we cannot reject a null hypothesis that average real GDP growth is 3 percent.”

I find it hard to agree with Reinhart and Rogoff when they say, “We do not, however, believe this regrettable slip affects in any significant way the central message of the paper.”

This piece is cross-posted from The Baseline Scenario with permission.

One Response to "Are Reinhart and Rogoff Right Anyway?"

  1. benleet   April 21, 2013 at 9:06 pm

    What is the country with 6.5% growth rate and debt of 150% of GDP? It must be doing something right. (look at upper right hand corner). The opposite side must be true too, the lower left hand corner. The graph resembles an ouigi board; read into it what you wish. Herndon and Ash did an interview at the Real News Network, TRNN.org. But there doesn't seem to be a broad red warning line at the 90% of GDP mark.