Quote of the Week

Contrary to popular perception, we find that in 11 of the 26 debt overhang cases, real interest rates were either lower or about the same as during the lower debt/GDP years. Those waiting for financial markets to send the warning signal through higher interest rates that government policy will be detrimental to economic performance may be waiting a long time.

— Carmen M. Reinhart, Vincent R. Reinhart, Kenneth S. Rogoff, “Debt Overhangs: Past and Present,” NBER Working Paper 18015 (2012), p. 3.

Of course, Krugman calls this paper “unfortunate and uncharacteristically sloppy.”