Reinhart and Rogoff had asserted that at the 90% debt-to-GDP ratio, the median growth rate among the countries they surveyed dropped by 1%, and that the mean growth rate dropped even further.
But Team Herndon discovered the pair had left out several countries whose history of debt versus GDP, they claim, would have shown nothing special happens at the 90% level.
The reason why all this matters is because, in the wake of the financial crisis, lots of people cited Reinhart and Rogoff’s findings to argue in favour austerity, including in the U.S
Now, in a new post on his website, Rogoff has produced another response in the form of a Frequently Asked Questions article.
It’s mostly a summary of past arguments that he and Reinhart have made: that everyone was drawing incorrect conclusions from their initial findings.
“We very explicitly state that our results should not be interpreted as saying that a country would suddenly experience a significant change in expected growth as it crossed the 90% threshold,” he writes.
Rogoff also confirms Team Herndon’s findings that there were omissions, but argues they are “of minor quantitative significance and hardly central to the debate.”
But Rogoff unexpectedly sideswipes the econo-blogo-sphere for having perpetuated misleading interpretations of their findings.
“The terms “threshold” and “nonlinearity” in economic research by no means imply there has to be a sharp break (no matter how much some bloggers incorrectly make that claim). Our more nuanced and perfectly conventional meaning is also clear in the context of the large literature in international finance that our paper builds on.”
The bloggers in question remain unnamed.