Financial and Monetary Systems

A brief guide to the Reinhart-Rogoff discussion

Adrian Monck
Managing Director, World Economic Forum Geneva
Our Impact
What's the World Economic Forum doing to accelerate action on Financial and Monetary Systems?
The Big Picture
Explore and monitor how Financial and Monetary Systems is affecting economies, industries and global issues
A hand holding a looking glass by a lake
Crowdsource Innovation
Get involved with our crowdsourced digital platform to deliver impact at scale
Stay up to date:

Financial and Monetary Systems

One of the intellectual pillars helping to make the case for austerity was Growth in a Time of Debt, published by Carmen Reinhart and Ken Rogoff (R&R) in 2010.

It received a lot of attention, primarily for appearing to demonstrate that if a government’s debt levels went above 90% of GDP, it would trigger recession.

“Our key finding is that growth rates are about 1 percentage point lower in periods of high debt. One percent doesn’t sound like a lot, but if you have a population that’s growing at 1% a year, 2% growth rather than 1% means your income per capita is going up, not stagnating. So it actually makes a big difference.” Carmen Reinhart 2010 (paywall)

Simon Johnson wrote: “The path-breaking work over many years of Carmen Reinhart, my colleague at the Peterson Institute in Washington, makes this very clear – no country, including the US, escapes the deleterious consequences of persistent large fiscal deficits. (Indeed, her book with Ken Rogoff, This Time Is Different, should be required reading for US policy-makers.)”

Not everyone agreed: “Debt matters, but the precise way that it matters isn’t as clear-cut as Reinhart-Rogoff seem to indicate. And simple extrapolation from their results to demands for across-the-board austerity isn’t a wise approach.” The Economist

However, the balance of the debate – and, as Quartz pointed out, policy – went very much with R&R, until Thomas Herndon, a young academic researcher, tried to replicate their results. Reuters takes up the story:

Herndon’s paper began life as a replication exercise for a term paper in a graduate econometrics class. He expected to replicate   Reinhart and Rogoff’s results, then challenge the idea that high public debt caused growth to slow.

But he never got that far. Repeated failures to replicate the results roused his interest. Pollin and Ash encouraged him to pursue it after he convinced them that he was on to something.

“At first, I didn’t believe him. I thought, ‘OK he’s a student; he’s got to be wrong. These are eminent economists and he’s a graduate student’,” Pollin said. “So we pushed him and pushed him and pushed him, and after about a month of pushing him I said, ‘Goddamn it, he’s right’.”

Herndon approached Reinhart and Rogoff earlier this year for the spreadsheets they used in their paper. The two professors provided them at the start of April, unlocking the mysteries of the data that had stumped Herndon.

This was the result: Does High Public Debt Consistently Stifle Economic Growth? A Critique of Reinhart and Rogoff by Thomas Herndon, Michael Ash and Robert Pollin (HAP). It showed that a basic Excel error had led to the hairline recession trigger (-0.1% growth).

HAP had other criticisms of the data presentation, well summarized by Mike Konczal, who flagged their paper. He also noted that had Reinhart and Rogoff made their data fully available when the paper had been published, the Excel error could have been caught much quicker.

The FT Data Blog carried Reinhart and Rogoff’s response.

Pollin and Ash countered on the FT’s op-ed page.

“Government deficit spending, pursued judiciously, remains the single most effective tool we have to fight against mass unemployment caused by severe recessions.”

Author: Adrian Monck is Managing Director and Head of Communications and Media at the World Economic Forum

Image: An arrangement of various world currencies is seen in Warswaw REUTERS/Kacper Pempel

Don't miss any update on this topic

Create a free account and access your personalized content collection with our latest publications and analyses.

Sign up for free

License and Republishing

World Economic Forum articles may be republished in accordance with the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International Public License, and in accordance with our Terms of Use.

The views expressed in this article are those of the author alone and not the World Economic Forum.

Related topics:
Financial and Monetary SystemsEconomic Growth
World Economic Forum logo
Global Agenda

The Agenda Weekly

A weekly update of the most important issues driving the global agenda

Subscribe today

You can unsubscribe at any time using the link in our emails. For more details, review our privacy policy.

Safeguarding central bank digital currency systems in the post-quantum computing age

Cameron Nili, Tom Patterson and Carl Dukatz

May 21, 2024

About Us



Partners & Members

  • Join Us

Language Editions

Privacy Policy & Terms of Service

© 2024 World Economic Forum