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Josh Barro

Reinhart-Rogoff on Debt and Growth: Fake but Accurate?

Carmen Reinhart and Ken Rogoff have not given a satisfying defense against the accusation that their blockbuster 2010 paper on growth is built on a data error.

Ken Rogoff and Carmen Reinhart have become known for warning that debt-to-GDP ratios over 90 percent are linked to poor economic growth. But a new working paper from economists at the University of Massachusetts says Reinhart and Rogoff's findings are created by bad methodology. They seem to have a point.

Thomas Herndon, Michael Ash and Robert Pollin say that the Reinhart-Rogoff finding of sharply lower average growth in high-debt countries rests on three errors: a bad weighting method, inexplicable exclusion of data from certain countries and years, and an Excel coding error. After fixing those problems, they find that "average GDP growth at public debt/GDP ratios over 90 percent is not dramatically different than when debt/GDP ratios are lower."

Yesterday's defenses from Reinhart and Rogoff are most notable for what they do not contain: a defense of the methodology that Herndon and his colleagues criticize. Instead, they make two main arguments. One is that a 2012 paper, which Reinhart and Rogoff wrote with Vincent Reinhart, supports their finding that high debt is associated with low growth, as do several papers from other researchers. Their other response is that the really important matter is median performance, not the mean performance statistic that the UMass researchers are critiquing.

"We have generally emphasized the 1% differential median result in all our discussions and subsequent writing," Rogoff told me in an e-mail. That is, in the graphic of means and medians below, from their 2010 American Economic Review paper (similar free version available here), the really important statistic is the median growth figure. That number is about 1 percentage point lower for the high-debt countries, not the average figure that falls off a cliff.

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Source: "Growth in a Time of Debt." Carmen M. Reinhart and Kenneth S. Rogoff. American Economic Review Volume 100. May 2010