Carmen M. Reinhart and Kenneth S. Rogoff IMF paper

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LH
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Carmen M. Reinhart and Kenneth S. Rogoff IMF paper

Post by LH »

For those who found the book "this Time Is Different: Eight Centuries of Financial Folly" a good read (link below)

http://www.amazon.com/This-Time-Differe ... 0691152640

They have authored an IMF paper:
Financial and Sovereign Debt Crises: Some
Lessons Learned and Those Forgotten
http://www.imf.org/external/pubs/ft/wp/2013/wp13266.pdf

Its a quick read which I found an interesting historical summary. thought I would pass it along.

have a nice day,

LH
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Re: Carmen M. Reinhart and Kenneth S. Rogoff IMF paper

Post by madbrain »

And after you read the book, also read this :

http://nymag.com/daily/intelligencer/20 ... ement.html
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Re: Carmen M. Reinhart and Kenneth S. Rogoff IMF paper

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and then you can follow it up with http://www.colbertnation.com/the-colber ... heet-error for a chuckle.
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nisiprius
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Re: Carmen M. Reinhart and Kenneth S. Rogoff IMF paper

Post by nisiprius »

Sorry, I don't trust those guys any more, for the reasons give by madbrain.
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Re: Carmen M. Reinhart and Kenneth S. Rogoff IMF paper

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madbrain wrote:And after you read the book, also read this :

http://nymag.com/daily/intelligencer/20 ... ement.html
He's a classic quote from that article:
Herndon found some hidden errors in Reinhart and Rogoff's data set, then calmly took the entire study out back and slaughtered it.
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Re: Carmen M. Reinhart and Kenneth S. Rogoff IMF paper

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It becomes a meme. People who discuss academic research like R&R have their own biases (much like R&R). Can't do anything about that.

The "truth" is, the spreadsheet error and other quantitative stretches that R&R were "caught" using doesn't fundamentaly change their conclusion. But those opposed to austerity can now say "liar, liar" and ignore what they say.

Opponents of austerity are reduced to doing that, because austerity means different things to different people, in different times, in different countries.

Almost everyone agrees Greece needed it, almost every agrees Germany doesn't. What lies between is in the eye of the beholder ...

PS In before the lock...
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Re: Carmen M. Reinhart and Kenneth S. Rogoff IMF paper

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Buysider wrote:It becomes a meme. People who discuss academic research like R&R have their own biases (much like R&R). Can't do anything about that.

The "truth" is, the spreadsheet error and other quantitative stretches that R&R were "caught" using doesn't fundamentaly change their conclusion. But those opposed to austerity can now say "liar, liar" and ignore what they say.
It's quite clear that their conclusions are not backed by their data.
nisiprius wrote:Sorry, I don't trust those guys any more, for the reasons give by madbrain.
+1. It isn't just some paper, either. This work was being used to shape economic policy.

They tried giving a rebuttal to Herndon, and that turned out to be pretty questionable as well.

It's really poor work. This article gets into the meat of the story pretty well.

http://www.nytimes.com/2013/04/30/opini ... InU6MOcdjg

http://www.newyorker.com/online/blogs/j ... ng-up.html
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matjen
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Re: Carmen M. Reinhart and Kenneth S. Rogoff IMF paper

Post by matjen »

Ged wrote:
Buysider wrote:It becomes a meme. People who discuss academic research like R&R have their own biases (much like R&R). Can't do anything about that.

The "truth" is, the spreadsheet error and other quantitative stretches that R&R were "caught" using doesn't fundamentaly change their conclusion. But those opposed to austerity can now say "liar, liar" and ignore what they say.
It's quite clear that their conclusions are not backed by their data.
nisiprius wrote:Sorry, I don't trust those guys any more, for the reasons give by madbrain.
+1. It isn't just some paper, either. This work was being used to shape economic policy.

They tried giving a rebuttal to Herndon, and that turned out to be pretty questionable as well.

It's really poor work. This article gets into the meat of the story pretty well.

http://www.nytimes.com/2013/04/30/opini ... InU6MOcdjg
I would politely suggest that those who question the quality of the work and what the excel error meant for that particular paper and the whole body of work take a listen to this econtalk segment. http://www.econtalk.org/archives/2013/0 ... and_w.html Go 30 minutes in. Three trained economists talking about this in pretty good detail.

Betsey Stevenson and Justin Wolfers are certainly not GOP partisans and I think their overview says a lot about how people react to the error. Buysider has it correct above IMO.

Justin Wolfers: "At the end of the day, the folks from U. Mass. Amherst want to claim that they found terrible errors and that Reinhart and Rogoff's negative correlation between public debt and growth is wrong. That's another mis-statement. That even once you accept all of the corrections and amendments of the Amherst folks, it's still the case that countries during periods of high debt tend to be growing slower than during periods of low public debt."
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Ged
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Re: Carmen M. Reinhart and Kenneth S. Rogoff IMF paper

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matjen wrote: I would politely suggest that those who question the quality of the work and what the excel error meant for that particular paper and the whole body of work take a listen to this econtalk segment.

Justin Wolfers: "At the end of the day, the folks from U. Mass. Amherst want to claim that they found terrible errors and that Reinhart and Rogoff's negative correlation between public debt and growth is wrong. That's another mis-statement. That even once you accept all of the corrections and amendments of the Amherst folks, it's still the case that countries during periods of high debt tend to be growing slower than during periods of low public debt."
Yes, but what they don't discuss is where the threshold and what the quantitative implications of applying a study like this to national policy is.

R&R still hold out that the threshold is 90%, and that I think is indefensible. Even worse is the idea national policy should be made on this basis of empirical work like this that cannot support conclusions of causality.

The article that you referenced contains this statement:

"Equally, it’s time to abandon the more specific claim that there is a threshold of 90 percent of GDP beyond which the negative effects of public debt on economic growth become particularly evident. This was always a stretch, and is now quite clearly inconsistent with the balance of the evidence. Unfortunately, it’s the sort of sound bite that the media and our politicians find irresistible."

The fact that R&R continue to defend this makes their position untenable.
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Re: Carmen M. Reinhart and Kenneth S. Rogoff IMF paper

Post by richard »

matjen wrote:Justin Wolfers: "At the end of the day, the folks from U. Mass. Amherst want to claim that they found terrible errors and that Reinhart and Rogoff's negative correlation between public debt and growth is wrong. That's another mis-statement. That even once you accept all of the corrections and amendments of the Amherst folks, it's still the case that countries during periods of high debt tend to be growing slower than during periods of low public debt."
Rogoff was making public statements to the effect that going over 90% debt/GDP would do terrible things to an economy.

Claiming there's a negative correlation between debt/gdp and growth is not very controversial - lowering growth tends to increase debt/gdp. It was insisting that debt caused lower growth and that there was a threshold that was the problem.
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Re: Carmen M. Reinhart and Kenneth S. Rogoff IMF paper

Post by Rodc »

richard wrote:
matjen wrote:Justin Wolfers: "At the end of the day, the folks from U. Mass. Amherst want to claim that they found terrible errors and that Reinhart and Rogoff's negative correlation between public debt and growth is wrong. That's another mis-statement. That even once you accept all of the corrections and amendments of the Amherst folks, it's still the case that countries during periods of high debt tend to be growing slower than during periods of low public debt."
Rogoff was making public statements to the effect that going over 90% debt/GDP would do terrible things to an economy.

Claiming there's a negative correlation between debt/gdp and growth is not very controversial - lowering growth tends to increase debt/gdp. It was insisting that debt caused lower growth and that there was a threshold that was the problem.
I have not followed this closely, but it seems significantly different to say that as debt rises growth tends to decrease (one link above had something along the lines of Debt/GDP of 30%-60% -> growth 4.2%, 60%-90% -> 3.2%, 90%-and up -> 2.2%) which is hugely different from saying after 90% you dip into NEGATIVE growth. Even if there was causality, and there isn't I hear, 2.2% while not great is not something catastrophic that needs to be avoided at all cost, and it is not some hard sharp cliff.

Unfortunately once someone states something in public is very difficult to fess up and say "I goofed". That is doubly hard for a so-called "expert".
We live a world with knowledge of the future markets has less than one significant figure. And people will still and always demand answers to three significant digits.
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Re: Carmen M. Reinhart and Kenneth S. Rogoff IMF paper

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matjen
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Re: Carmen M. Reinhart and Kenneth S. Rogoff IMF paper

Post by matjen »

rmark1 wrote:You can read their response here
http://www.carmenreinhart.com/response-to-critics/

Personally, I like this one
http://www.cyniconomics.com/2013/04/22/ ... f-dispute/
Excellent articles rmark1. It's weird how 3 econ profs (2 of whom are certainly Dems) and this summary which cites esteemed econ blog Marginal Revolution among other sources seem to reach one conclusion and those who are fond of citing New York Magazine or the NYT reach another.

"RR never presented 90% as a magic number – where 89.9 is a clear, sunny day and 90.1 a class 5 hurricane – nor did they neglect to recognize that correlation is not causation. I’ve cited the paper on several occasions and never saw it in the way that their critics claim it was presented. Marginal Revolution – probably the most heavily trafficked economics blog – recently republished a 2010 post that likewise didn’t consider 90% to be either “sacred” or “stable.” I doubt that any of those who read RR carefully saw 90% as more than the upper limit on one of their buckets and a reasonable marker to use in their conclusions."
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Re: Carmen M. Reinhart and Kenneth S. Rogoff IMF paper

Post by richard »

The R&R paper was frequently cited as meaning 90% was a magic number. Rogoff gave frequent interviews and certainly appeared to support that interpretation. Facilitating the 90% interpretation and then distancing themselves after it was proved wrong is not a strong marker for integrity.

Here's the Wall St Journal citing R&R: "For countries above the 90% threshold, average annual growth was about three percentage points lower than for countries with public debt of less than 30% of GDP."
http://blogs.wsj.com/economics/2010/01/ ... ic-growth/

George Osborne, UK Chancellor of the Exchequer:
"The latest research suggests that once debt reaches more than about 90% of GDP the risks of a large negative impact on long term growth become highly significant. If off-balance sheet liabilities such as public sector pensions are included we are already well beyond that. And even on official internationally comparable measures of debt, we are forecast to break through 90% of GDP in just two years time…"
http://www.newyorker.com/online/blogs/j ... ng-up.html

The Wall St. Journal and George Osborne can hardly being accused of having a liberal bias.
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Re: Carmen M. Reinhart and Kenneth S. Rogoff IMF paper

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Richard the point isn't what politicians or the press did or said. No one is arguing that the paper wasn't influential. That is acknowledged.
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Re: Carmen M. Reinhart and Kenneth S. Rogoff IMF paper

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The main point is that they knew how the paper was being used as a major factor in one of the most important economic issues and they did nothing to correct what they now say is an incorrect interpretation.

The other point is they based a hugely influential paper on sloppy work and, for a long time, refused to share the underlying data or check their own work, even when others said their data or their math must be wrong.

Either of these is enough to lead to Nisiprius's conclusion "I don't trust those guys any more."
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Re: Carmen M. Reinhart and Kenneth S. Rogoff IMF paper

Post by matjen »

richard wrote:The main point is that they knew how the paper was being used as a major factor in one of the most important economic issues and they did nothing to correct what they now say is an incorrect interpretation.

The other point is they based a hugely influential paper on sloppy work and, for a long time, refused to share the underlying data or check their own work, even when others said their data or their math must be wrong.

Either of these is enough to lead to Nisiprius's conclusion "I don't trust those guys any more."
Except for the dozens of quotes listed in their response supporting stimulus and the fact that their data was publicly available from early 2011 on. Other than that I agree with you! ;-)

Full Disclosure: I am a believer/follower of Modern Monetary Theory (heavy stimulus/debt is of little consequence if denominated in your own currency, etc.) so I really have no intellectual or political axe to grind here. I just think the demonization of R&R is ridiculous.
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