May
07

Dangerous Debt

The take-away message from the Reinhart-Rogoff error is that research mistakes happen, that higher debt levels are correlated with slower GDP growth, and that there is no debt threshold, 90% or otherwise, above which growth dramatically collapses. Rather, as the debt/GDP ratio rises, growth rates systematically decline. The key unanswered question of the research is do higher debt levels reduce growth, or does slow growth cause higher debt levels?

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