"EE" | Economics & Economists - İktisat & İktisatçılar
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"EE" | Economics & Economists - İktisat & İktisatçılar
About economics, schools of economics and economists - İktisat, iktisat ekolleri ve iktisatçılar hakkında
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Krugman: "Plain ordinary macro has worked fine"

Krugman: "Plain ordinary macro has worked fine" | "EE" | Economics & Economists - İktisat & İktisatçılar | Scoop.it

Still thinking my way through the Reinhart-Rogoff debacle and related issues, and I think there’s an important point to be made here about the state of macroeconomics.

 

You can already see quite a few people reacting to this affair by declaring that macro is humbug, we don’t know anything, and we should just ignore economists’ pronouncements. Some of the people saying this are economists themselves!

 

But the truth is that basic macroeconomics — IS-LM type macro, the stuff that’s in Econ 101 textbooks — has performed spectacularly well in the crisis.

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Aykut Kibritçioğlu's comment, April 26, 2013 5:52 AM
Bu yazısında, Paul Krugman; (1) Reinhart & Rogoff veya Alesina & Ardagna türü yaklaşımların ve (2) krizi aşmada onların bulgu ve politika önerilerine dayanarak "kemer sıktıran" (austerity) politikacıların sonradan iktisat(çılar) için yarattığı prestij kaybını çok iyi özetlemiş.
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The Reinhart/Rogoff Mistake and Economic Epistemology

The Reinhart/Rogoff Mistake and Economic Epistemology | "EE" | Economics & Economists - İktisat & İktisatçılar | Scoop.it

By now, it is well known, at least in wonkish circles, that the economists Reinhart&Rogoff (R&R) made a number of errors in deriving their highly influential finding that debt-to-GDP ratios above 90% lead to slower growth.  Kudos to the various academics and bloggers who dug into this—particularly Herndan et al, who most recently found and documented the spreadsheet error and other questionable practices in R&R’s work, Mike Konczal who neatly summarized the critique, and Bivens and Irons, who back in 2010 showed the R&R thesis to be deeply flawed (and here’s a smart oped by Herndon’s co-authors).

 

Yet, as I noted in my brief review of this the other day, neither the older nor the more recent revelations are likely to have much impact on policy (or even, it would seem, on R&R, whose response has pretty been much been, “yeah, ok…but if we did it right, we still woulda got the same answer”).  In the first place, the fatal error in their work was not the spreadsheet error.  It was ignoring context (the unique, country, and time-specific reasons why is debt/GDP is rising) and thus conflating correlation with causality, specifically, periods when it’s slow growth leading to higher debt.

 

Why wouldn’t we expect a reaction from policymakers?  Because they’re using research findings the way a drunk uses a lamppost: for support, not for illumination.  If the R&R lamppost turns out to be wobbly, the austerions (or climate-change deniers, or supply-siders) will find another one.  In this town, I’m sorry to say, you can pretty much go think-tank shopping to buy the result you seek.

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Does High Public Debt Consistently Stifle Economic Growth? A Critique of Reinhart and Rogoff

Herndon, Ash and Pollin replicate Reinhart and Rogoff and find that coding errors, selective exclusion of available data, and unconventional weighting of summary statistics lead to serious errors that inaccurately represent the relationship between public debt and GDP growth among 20 advanced economies in the post-war period. They find that when properly calculated, the average real GDP growth rate for countries carrying a public-debt-to-GDP ratio of over 90 percent is actually 2.2 percent, not -0:1 percent as published in Reinhart and Rogo ff. That is, contrary to RR, average GDP growth at public debt/GDP ratios over 90 percent is not dramatically different than when debt/GDP ratios are lower.

 

The authors also show how the relationship between public debt and GDP growth varies significantly by time period and country. Overall, the evidence we review contradicts Reinhart and Rogoff 's claim to have identified an important stylized fact, that public debt loads greater than 90 percent of GDP consistently reduce GDP growth.

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Aykut Kibritçioğlu's comment, April 18, 2013 4:30 PM
"How a student took on eminent economists on debt issue - and won": http://www.reuters.com/article/2013/04/18/us-global-economy-debt-herndon-idUSBRE93H0CV20130418
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Arin Dube demolishes Reinhart and Rogoff

Arin Dube demolishes Reinhart and Rogoff | "EE" | Economics & Economists - İktisat & İktisatçılar | Scoop.it
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Aykut Kibritçioğlu's comment, April 18, 2013 4:22 PM
Arindrajit Dube (2013.04.17): "Guest Post: Reinhart/Rogoff and Growth in a Time Before Debt", http://www.nextnewdeal.net/rortybomb/guest-post-reinhartrogoff-and-growth-time-debt