The Italian Crisis of 2013

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What is going on with Italy in early 2013?

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user's picture

To the first point: There is a NBER paper by Reinhart & Rogoff (http://www.nber.org/papers/w15639) where they evaluate data on growth and sovereign debt and find a statistical correlation between a sovereign debt / gdp ratio in excess of 90% and declining growth rates.

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Rishi, it's not true to say that "nothing happens" - rather: nothing dramatic happens.

Reinhart & Rogoff results still show that increasing debt lowers growth, there just isn't a sharp drop-off beyond 90% that their original (faulty) analysis showed.

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It was eventually discovered that their hypothesis was incorrect due to incorrect coding. And nothing happens when Debt-gdp ratio crosses 90%.

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