Thursday, 18 April 2013

Reinhart-Rogoff and Asprine

There seem to be some very substantial problems with the data that underpins Reinhart's and Rogoff's thesis that countries with a debt/GDP ration above 90% tend to experience slower growth than others. A good summary of the problems with the data that have now emerged can be found here.

Other important doubts about the implications of the R&R data had been voiced earlier and are mentioned in the piece. Quite a part from the validity of the data, it is really important to ask what a correlation between high debt and low growth means (or rather would mean if it existed). Does this correlation really imply a causation and if so which way does it run? Most likely, people who take more Aspirine also have more headaches. But should we really conclude, that limiting your consumption of Aspirine will reduce your headaches?

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