Carmen Reinhart and Ken Rogoff wrote a letter to Paul Krugman.
He responded, and so did some others. (DeLong for Krugman; Hamilton for R&R.)
On it goes.
And why not? Austerity is an important subject, the empirical data or lack of it deserves a great deal of attention. Economists calling each other names, probably less so. But it’s so entertaining… Read more
This post by Gavyn Davies has been cross-published at Gavyn’s own blog.
The work of Carmen Reinhart and Ken Rogoff (RR) on public sector debt ratios, and their relationship with GDP growth, has been extraordinarily influential in academic and policy circles since 2010. Before this week, their statistical analysis, based on a 200-year database which they had painstakingly assembled covering dozens of countries, had appeared to establish an important stylised fact: that debt ratios above 90 per cent were associated with much lower rates of GDP growth than debt ratios under 90 per cent. The sudden drop in growth at a debt ratio similar to that reached in many developed economies acted as a wake up call to governments and encouraged the adoption of austerity programmes. Read more
The Oregon Office of Economic Analysis has ventured an update to Carmen Reinhart and Ken Rogoff’s ‘This Time it’s Different‘, the seminal work on financial crises of the past – and their related analysis on the aftermath of financial crises.
The OOEA* uses both updated and revised data and, mostly, confirm that while things have of course gotten worse, they’re still inside the historical norms. For example, equity price declines: Read more
There’s a wider theme running through the relatively technical question of how the European Central Bank’s massive holdings of Greek government bonds will fare in any Hellenic debt restructuring.
There are plenty of market participants who already believe the likelihood the ECB will have to suffer the same losses as private investors on their Greek debt investment, is very very low. They figure the central bank will seek preferred creditor status, lowering the payouts left for other investors. Then there are others who argue that the ECB should seek de facto preferred creditor status to avoid a pari passu precedent. Then there are people like Roubini who argue that the ECB has already claimed de facto juniority (?) because it’s agreed to be on the hook for about €91bn worth of Greek liquidity lines. Read more
Unlike Roubini & Bremmer, we doubt the recent crisis has produced an “irreversible” setback from which developed economies will never recover.
But that doesn’t mean the current pain will be short-lived or easy to bear. Read more
We’re not known for our sunny disposition here at FT Alphaville, but it would be rude not to point out an uplifting message when one catches our eye. So, over to the Aid Watch blog (of all places)…
Drawing upon the lessons of This Time is Different, the magisterial history of financial crises written by Carmen Reinhart and Kenneth Rogoff, economist William Easterly concludes that “if financial crises are so common and the world keeps growing anyway, then they must not be so damaging in the long run.” Read more