Friday Open Thread
Just to remind folks, Reinhart and Rogoff (R&R) are the authors of the widely acclaimed book on the history of financial crises, This Time is Different. They have also done several papers derived from this research, the main conclusion of which is that high ratios of debt to GDP lead to a long periods of slow growth. Their storyline is that 90% is a cut-off line, with countries with debt-to-GDP ratios above this level seeing markedly slower growth than countries that have debt-to-GDP ratios below this level. The moral is to make sure the debt-to-GDP ratio does not get above 90%.
After being unable to reproduce R&R’s results with publicly available data, HAP were able to get the spreadsheets (zip) that R&R had used for their calculations. It turns out that the initial results were driven by simple computational and transcription errors. The most important of these errors was excluding four years of growth data from New Zealand in which it was above the 90% debt-to-GDP threshold. When these four years are added in, the average growth rate in New Zealand for its high debt years was 2.6%, compared to the -7.6% that R&R had entered in their calculation.
I’m sorry, but I think the ‘mistake’ was on purpose.
TGIF and Good Morning.
As you go through your day, don’t forget JJP at TWIB.
Drop those links. Engage in debate. Give us trivia and gossip too.
And always, have a peaceful day.