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Financial Planning > College Planning > Student Loan Debt

Reinhart and Rogoff Fight Back

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Carmen Reinhart and Kenneth Rogoff, in a formal response on Wednesday to a trio of researchers assailing their work, vigorously defended a seminal study they authored in 2010 while accounting for a spreadsheet glitch and addressing other criticisms.

A critique by University of Massachusetts researchers Thomas Herndon, Michael Ash and Robert Pollin heated up the blogosphere Tuesday with its discovery that Reinhart and Rogoff’s influential paper grossly overstated the impact of high debt-to-GDP ratios as a result of a simple Excel spreadsheet error.

The University of Massachusetts trio also criticized what they termed “selective exclusion” of data that would be unfavorable to their conclusions as well as an alleged “unconventional weighting” of statistics.

Condemnatory reaction was swift, particularly from many liberal economists suggesting that Reinhart and Rogoff’s research was aimed at discrediting high levels of public spending; one critic asked “how much unemployment was caused by Reinhart and Rogoff’s arithmetic mistake” and several called for higher deficit spending.

Kenneth RogoffIn a full response on Wednesday (following a briefer reaction Tuesday), Reinhart and Rogoff (left), famed for their 2009 book on financial crises (This Time is Different), concede the spreadsheet glitch. “It is sobering that such an error slipped into one of our papers despite our best efforts to be consistently careful,” they write.

But they argue the mistake does not invalidate the “central message” of the paper that  Herndon, Ash and Pollin (HAP) critique and they counter HAP’s other criticisms as well.

The coding error caused Reinhart and Rogoff to present countries with a debt-to-GDP ratio of greater than 90% as having an average growth rate of negative 0.1%, rather than HAP’s corrected 2.2% growth rate.

Though they regret the error, “we are fortunate that we chose to present our results in several different ways, including means, medians and individual country averages, in no small part as standard robustness checks,” they write.

In other words, the very same paper with a false mean result that HAP critiqued also contained much higher median (1.6%) postwar growth rates as well as results for a longer time period (1.9%) to which they gave parallel attention. Moreover, a subsequent study they conducted last year (that is, prior to the HAP critique) showed even higher long term growth rates for high debt countries of 2.4%.

So Reinhart and Rogoff are “grateful” for the HAP correction, which helps them “reconcile why one result is out of line with all the other results in our original paper.”

But the economic duo take umbrage at HAP’s accusation of “selective omissions,” a charge they say permeates their critique. HAP’s finding that Reinhart and Rogoff left out unfavorable data for postwar New Zealand is “explained by the fact there were still gaps in our public data debt set at the time of this paper, a data set no one else had ever been able to construct before and which we now have filled in much more completely,” they write.

The New Zealand data had just become available at the time of their study—“HAP only knew we had these data as we sent them the file we had used at that time.” Reinhart and Rogoff respond that they had not yet vetted the comparability of the data.

“But surely the authors do not mean to insinuate that we manipulated the data to exaggerate our results,” the economic duo protest, noting that the same study contained multiple higher median figures and that they have continually documented and updated multiple sources in the public domain over the years.

As to the problem of unconventional weighting of statistics, Reinhart and Rogoff respond that they took average growth rates for each country, then group averages, which they duly reported in a table.

Yet they sought to avoid in another chart overly weighing a small number of counties with peculiarities. “We do not want to excessively weight Greece, for example, which has debt over 90% for 19 years in the 1946-2009 sample.”

The bottom line, Reinhart and Rogoff say, is that HAP’s results are in line with their own original conclusions. “They, too, find lower growth associated with periods when debt is over 90%. And they emphasize that a different table using median figures in the very same paper HAP critique were close to the corrected figure HAP generates.

Indeed, Reinhart and Rogoff go on offense in saying that HAP dangerously minimize the smaller growth rate differentials their corrected study shows.

High debt episodes tend to last 23 years on average, Reinhart and Rogoff say. “If a country grows at 1% below trend for 23 years, output will be roughly 25% below trend at the end of the period, with massive cumulative effects.”

Finally, Reinhart and Rogoff lament accusations that politics influenced their scholarly work.

“Looking to the reaction to this comment in [the] blogosphere, we note that this is not the first time our academic work is seen pandering to a political view. What is quite remarkable is that this claim has spanned polar opposites! This time, we are charged with misconstruing analysis to support austerity. Only a few months ago, our findings on slow recoveries from financial crises was accused as providing a rationale for the deep recession and weak economy the Obama administration has faced since 2009,” they write.

Indeed, amid the heat of the 2012 election campaign Reinhart and Rogoff critiqued advisors to Republican Mitt Romney’s campaign who said the absence of a stronger economic recovery was out of line with historic norms.

The economic duo identified with neither party in the race, saying they spoke up merely to defend the thrust of their research that the U.S. is not different from the experience of other countries recovering from systemic financial crises.


Read Oops! Reinhart-Rogoff Research Tripped Up by Typo on AdvisorOne.


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