Friday, May 30, 2014

Not even the IMF believes in Reinhart and Rogoff debt limits

From the intro to a new paper by two economists from the research department at the IMF:
"Influential papers such as Reinhart and Rogoff (2010) and Reinhart, Reinhart, and Rogoff (2012) argue that there is a threshold effect: when debt in advanced economies exceeds 90 percent of GDP there is an associated dramatic worsening of growth outcomes. Others dispute the notion that there is such a clear threshold and suggest that it is weak growth that causes high debt rather than high debt that causes weak growth (Panizza and Presbitero, 2012; Herndon, Ash, and Pollin, 2013). Using a new approach we found little evidence that there is any particular debt ratio above which growth falls sharply."
Not that there was much of a debate at this point. 

1 comment:

  1. Useful link, thank you Matias, new empirical evidences show that growth causes debt but the reverse relationship does not hold. (http://www.voxeu.org/article/growth-and-sovereign-debt-correlation#.U4Iny04_z7I.facebook).

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