Hamilton hammers HAP (re Reinhart and Rogoff)

Pity the fool that takes on Jim Hamilton.

Jim had the good grace to publish Robert Pollin and Michael Ash’s reply to his comment regarding the HAP critique of Reinhart and Rogoff AER 2010.

Jim then added a few more comments. His tone is graceful, but the content is stinging — for prof. Hamilton basically suggests that they are the ones who do not understand statistics!

Pollin and Ash then repeat the arguments in their paper about the desirability of treating all country-years equally without responding to the particular critique of their argument that I originally provided. The issue I raised has nothing to do with serial correlation. The issue instead is whether the expected GDP growth rate should be regarded as if it is the same number across different countries. A well-known econometric method for dealing with this is referred to as “country fixed effects.” In this method, one uses the average for the Greek observations as an estimate of the Greek growth rate and the average of the U.S. observations as an estimate of the U.S. growth rate. This is a widely used procedure. By contrast, the weighting proposed by Herndon, Ash, and Pollin assumes that the expected growth rate is the same across different countries, an approach that is less widely chosen for panel data sets and in my opinion less to be recommended. Given that the ultimate goal in this case is to infer an average effect across different countries, I personally feel that a random-effects approach would be superior to fixed-effects estimation, particularly given the unbalanced nature of the panel (that is, given the fact that we have many more observations on the 90% debt state for some countries than for others). As I noted in my original piece, this would yield an estimate that would be in between those or RR and HAP. But to suggest that there is some deep flaw in the method used by RR or obvious advantage to the alternative favored by HAP is in my opinion quite unjustified

(My take on this subject is here, and a related post on Hamilton’s view is here)

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6 Responses to Hamilton hammers HAP (re Reinhart and Rogoff)

  1. james thommo says:

    ricardo nice post. on your housing comments, i think Alan Mitchell agrees with you in the AFR this weekend. implies housing is a key constraint. also Joyeboy has a great feature on five new Australian hedge funds that have raised ~$4 billion since 2008

    http://www.afr.com/p/personal_finance/smart_money/five_of_the_best_australian_hedge_DfsepcpFUeV3JKrysTiL5J

  2. nottrampis says:

    or you could read it here where some bloke called Ricardo Ambivalence has a number of articles highlighted!

    Personally I think mike Konzal at Rortybomb has nailed this topic

    • Ricardo says:

      I just do not see how anyone can agree with his opening line: it has refuted nothing. That’s why i keep hammering the Hamilton stuff.

      “A recent paper by Thomas Herndon, Michael Ash, and Robert Pollin (HAP) has effectively refuted one of the most frequently cited stats of recent years: countries with public debt above 90 percent of GDP experience sharp drop offs in economic growth.”

  3. nottrampis says:

    doesn’t your wife have anything she wants done over the week-end?

  4. nottrampis says:

    very lucky but of course economists do not believe in luck!!

    Read the other papers.

    R&R’s paper, as opposed to the book, got it wrong. The causation is if anything the other way round!

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