Excel Spreadsheets, Krugman, and a Question of Logic

by Mike Shedlock
MISH’S Global Economic Trend Analysis

In 2010 paper Growth in a Time of Debt and again in a book entitled This Time is Different, Harvard economists Ken Rogoff and Carmen Reinhart presented the idea that when a country’s ratio of debt to gross domestic product reaches 90% lower economic growth is on the horizon.

However, Rogoff and Reinhart made an Excel Spreadsheet Error in their work that has the economic world in a tizzy.

A new study by three researchers at the University of Massachusetts finds that Rogoff and Reinhart made several mistakes that invalidate their thesis. They made a spreadsheet error that resulted in their leaving five countries out of an all-important average of countries with higher than 90% debt-to-GDP ratios. By restoring the full average, the UMass authors say, the growth rate for countries in that range becomes 2.2%, not the -0.1% cited by Rogoff and Reinhart. That makes the average growth rate at that ratio “not dramatically different than when debt/GDP ratios are lower.”

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