Bob Pollin responds to Reinhart and Rogoff

9 May, 2013 at 09:27 | Posted in Economics | 1 Comment

 

(h/t Jan Milch)

1 Comment

  1. A new paper by University of Massachusetts professor Arindrajit Dube finds evidence that Reinhart and Rogoff had the relationship between growth and debt backwards: Slow growth appears to cause higher debt, if anything.

    A Note on Debt, Growth and Causality
    Arindrajit Dube
    Preliminary (This version May 30, 2013)

    https://dl.dropboxusercontent.com/u/15038936/RR%20Timepath/Dube_Growth_Debt_Causation.pdf

    Abstract: This note documents the timing in the relationship between the debt-to-GDP ratio and real GDP growth in advanced economies during the post World War II period using the Reinhart and Rogoff dataset. I first show that the debt ratio is more clearly associated with the 5-year past average growth rate, rather than the 5-year forward average growth rate–indicating a problem of reverse causality.
    Indeed, there is little evidence of a lower growth rate above the 90 percent threshold when using the 5-year forward average growth rate. I use a number of simple tools to account for some of the reverse causality in the bivariate regression–such as using forward growth rate, instrumenting the current debt ratio with its lag, and controlling for lagged GDP growth rates. These simple methods of accounting for reverse causality diminish the size of the association by between 50 and 70 percent, with the linear
    regression estimate indistinguishable from zero. Finally non- and semi-parametric plots provide visual confirmation that the relationship between debt-to-GDP ratio and growth is essentially flat for debt ratios exceeding 30 percent when we (1) use forward growth rates, (2) control for past GDP growth, or both

    University of Michigan economics professor Miles Kimball and University of Michigan undergraduate student Yichuan Wang write that they have crunched Reinhart and Rogoff’s data and found “not even a shred of evidence” that high debt levels lead to slower economic growth.
    After crunching Reinhart and Rogoff’s data, we’ve concluded that high debt does not slow growth
    By Miles Kimball and Yichuan Wang may 29, 2013

    http://qz.com/88781/after-crunching-reinhart-and-rogoffs-data-weve-concluded-that-high-debt-does-not-cause-low-growth/?oref=dbamerica


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