Monday, December 5th, 2011 11:39 am

Italy’s Debt

Question A:

Credible assumptions for inflation, GDP growth and primary budget deficits in Italy imply that either the Debt-to-GDP ratio in Italy would increase sharply if Italian interest rates on 10-year government debt remained at the November 30 level of around 7 percent or Italy would lose access to the bond market.

Responses
 

Source: IGM Economic Experts Panel
www.igmchicago.org/igm-economic-experts-panel

Responses weighted by each expert's confidence

Source: IGM Economic Experts Panel
www.igmchicago.org/igm-economic-experts-panel

Question B:

Absent outside help to deal with runs, such as a pledge of fiscal support from Germany or an unlimited commitment by the ECB to buy bonds, there is no spending-and-tax plan Italy can announce that would be credible enough to hold its interest rates low enough to stabilize its Debt-to-GDP ratio.

Responses
 

Source: IGM Economic Experts Panel
www.igmchicago.org/igm-economic-experts-panel

Responses weighted by each expert's confidence

Source: IGM Economic Experts Panel
www.igmchicago.org/igm-economic-experts-panel

Question A Participant Responses

Participant University Vote Confidence Comment Bio/Vote History
Acemoglu Daron Acemoglu MIT Uncertain 5
The question presumes that there is no possibility of debt restructuring that could keep debt to GDP stable and grant access to bond markets
Bio/Vote History
         
Alesina Alberto Alesina Harvard Strongly Agree 9
these rates are unsutainable but a program of deep structural reforms and budget tightening could reestablish credibilty of reduce spreads
Bio/Vote History
         
Altonji Joseph Altonji Yale Did Not Answer
Bio/Vote History
         
Auerbach Alan Auerbach Berkeley Agree 5
Bio/Vote History
         
Autor David Autor MIT No Opinion
Bio/Vote History
         
Baicker Katherine Baicker Harvard No Opinion
Bio/Vote History
         
Bertrand Marianne Bertrand Chicago No Opinion
Bio/Vote History
         
Chetty Raj Chetty Harvard Did Not Answer
Bio/Vote History
         
Chevalier Judith Chevalier Yale Agree 2
This is not really my area, though I nonetheless understand the question to be roughly true.
Bio/Vote History
         
Currie Janet Currie Princeton No Opinion
Bio/Vote History
         
Cutler David Cutler Harvard No Opinion
Bio/Vote History
         
Deaton Angus Deaton Princeton Agree 3
Bio/Vote History
         
Duffie Darrell Duffie Stanford Agree 4
Not necessarily "sharply" in time, but significantly over time, yes, absent some other big structural shift.
Bio/Vote History
         
Edlin Aaron Edlin Berkeley Agree 7
Italy as a problem likely to get worse before it gets better.
Bio/Vote History
         
Eichengreen Barry Eichengreen Berkeley Strongly Agree 9
Bio/Vote History
         
Fair Ray Fair Yale No Opinion
This question is too confusing to answer.
Bio/Vote History
         
Goldberg Pinelopi Goldberg Yale Agree 6
Bio/Vote History
         
Goldin Claudia Goldin Harvard No Opinion
Bio/Vote History
         
Goolsbee Austan Goolsbee Chicago Agree 7
not good. not good.
Bio/Vote History
         
Greenstone Michael Greenstone Chicago Did Not Answer
Bio/Vote History
         
Hall Robert Hall Stanford Agree 7
Zero real GDP growth and huge outstanding debt make the deficit growth high even though Italy has a small primary surplus.
Bio/Vote History
         
Holmström Bengt Holmström MIT Agree 4
Bio/Vote History
         
Hoxby Caroline Hoxby Stanford Agree 9
At those interest rates, Italy's interest payments will become an ever increasing share of its govt budget, under any plausible tax scenario
Bio/Vote History
         
Judd Kenneth Judd Stanford No Opinion
Bio/Vote History
         
Kashyap Anil Kashyap Chicago Strongly Agree 10
Basic arithmetic of debt dynamics shows that this constellation cannot persist.
Bio/Vote History
         
Klenow Pete Klenow Stanford Agree 5
Debt 120%, deficit 4%, growth 4% (nominal) --> ratio falling. Higher rates (say pushing the deficit on a path toward 8%) --> ratio rising.
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Bio/Vote History
         
Lazear Edward Lazear Stanford Did Not Answer
Bio/Vote History
         
Levin Jonathan Levin Stanford Agree 3
Not sure about "sharply" but seems hard to lower debt-to-GDP at those interest rates without better growth prospects.
Bio/Vote History
         
Maskin Eric Maskin Harvard Agree 8
Bio/Vote History
         
Nordhaus William Nordhaus Yale No Opinion
Bio/Vote History
         
Obstfeld Maurice Obstfeld Berkeley Strongly Agree 10
Hard to imagine any feasible austerity plan that would work at 7% or more, given the negative effect on real GDP growth and inflation.
Bio/Vote History
         
Rouse Cecilia Rouse Princeton No Opinion
Bio/Vote History
         
Saez Emmanuel Saez Berkeley Agree 3
Bio/Vote History
         
Scheinkman José Scheinkman Princeton Did Not Answer
Bio/Vote History
         
Schmalensee Richard Schmalensee MIT Uncertain 1
Simply have not done the necessary quantitative work.
Bio/Vote History
         
Shin Hyun Song Shin Princeton Agree 8
Bio/Vote History
         
Stock James Stock Harvard Did Not Answer
Bio/Vote History
         
Stokey Nancy Stokey Chicago Strongly Agree 9
Bio/Vote History
         
Thaler Richard Thaler Chicago No Opinion
Bio/Vote History
         
Udry Christopher Udry Yale No Opinion
Bio/Vote History
         
Zingales Luigi Zingales Chicago Agree 6
Bio/Vote History
         

Question B Participant Responses

Participant University Vote Confidence Comment Bio/Vote History
Acemoglu Daron Acemoglu MIT Uncertain 4
This question again rules out the possibility of debt restructuring. Also not clear that effective ECB commitments must be unlimited.
Bio/Vote History
         
Alesina Alberto Alesina Harvard Agree 9
italy needs deep domestic refroms and a solution of the eurpoean French-German impasse on the role of the ECB
Bio/Vote History
         
Altonji Joseph Altonji Yale Did Not Answer
Bio/Vote History
         
Auerbach Alan Auerbach Berkeley Disagree 5
Bio/Vote History
         
Autor David Autor MIT No Opinion
Bio/Vote History
         
Baicker Katherine Baicker Harvard No Opinion
Bio/Vote History
         
Bertrand Marianne Bertrand Chicago Disagree 1
Bio/Vote History
         
Chetty Raj Chetty Harvard Did Not Answer
Bio/Vote History
         
Chevalier Judith Chevalier Yale Agree 2
Again, this is definitely not my area, and I might have preferred the question to include a "likely", but I believe it is likely to be true.
Bio/Vote History
         
Currie Janet Currie Princeton No Opinion
Bio/Vote History
         
Cutler David Cutler Harvard Uncertain 1
Bio/Vote History
         
Deaton Angus Deaton Princeton Agree 3
Bio/Vote History
         
Duffie Darrell Duffie Stanford Uncertain 3
I am pessimistic, absent outside help, but this is a strong statement that Italy has no way at all to do it on its own. I'm uncertain.
Bio/Vote History
         
Edlin Aaron Edlin Berkeley Agree 7
Something big by way of a guarantee is the surest way to stability of italian bonds.
Bio/Vote History
         
Eichengreen Barry Eichengreen Berkeley Agree 5
Bio/Vote History
         
Fair Ray Fair Yale Agree 4
Hard to know what others would take as credible. Really a psychological question.
Bio/Vote History
         
Goldberg Pinelopi Goldberg Yale Agree 5
Bio/Vote History
         
Goldin Claudia Goldin Harvard No Opinion
Bio/Vote History
         
Goolsbee Austan Goolsbee Chicago Agree 7
without growth, all the austerity you can muster will not solve the problem
Bio/Vote History
         
Greenstone Michael Greenstone Chicago Did Not Answer
Bio/Vote History
         
Hall Robert Hall Stanford Agree 3
This is a question about Italian politics where I'm no expert, but progress so far in lowering real wages and improving TFP has been small.
Bio/Vote History
         
Holmström Bengt Holmström MIT Agree 5
Stabilization requires short-term outside liquidity support, a credible long-term fiscal plan along with lower interest rates. Go together.
Bio/Vote History
         
Hoxby Caroline Hoxby Stanford Agree 8
A political economy question on the spending side! (The tax side is fairly clear.) It fits my knowledge of Italy's ability to cut spending
Bio/Vote History
         
Judd Kenneth Judd Stanford No Opinion
Bio/Vote History
         
Kashyap Anil Kashyap Chicago Agree 7
Hard call, you can't say the country is insolvent -- but how will Italy roll all of its debt if there is no outside support?
Bio/Vote History
         
Klenow Pete Klenow Stanford Uncertain 5
Bio/Vote History
         
Lazear Edward Lazear Stanford Did Not Answer
Bio/Vote History
         
Levin Jonathan Levin Stanford Uncertain 2
Bio/Vote History
         
Maskin Eric Maskin Harvard Disagree 7
Bio/Vote History
         
Nordhaus William Nordhaus Yale No Opinion
Bio/Vote History
         
Obstfeld Maurice Obstfeld Berkeley Agree 8
Credibility is the key, so "outside help" to keep borrowing cost down would be a critical element in success of any austerity plan.
Bio/Vote History
         
Rouse Cecilia Rouse Princeton No Opinion
Bio/Vote History
         
Saez Emmanuel Saez Berkeley Agree 3
Bio/Vote History
         
Scheinkman José Scheinkman Princeton Did Not Answer
Bio/Vote History
         
Schmalensee Richard Schmalensee MIT Uncertain 1
Simply have not done the necessary quantitative work.
Bio/Vote History
         
Shin Hyun Song Shin Princeton Agree 8
Bio/Vote History
         
Stock James Stock Harvard Did Not Answer
Bio/Vote History
         
Stokey Nancy Stokey Chicago Strongly Disagree 9
Modest spending cuts, together with substantial regulatory reform, would probably solve the problem.
Bio/Vote History
         
Thaler Richard Thaler Chicago No Opinion
Above my pay grade.
Bio/Vote History
         
Udry Christopher Udry Yale No Opinion
Bio/Vote History
         
Zingales Luigi Zingales Chicago Agree 6
Bio/Vote History
         

10 New Economic Experts join the IGM Panel


For the past two years, our expert panelists have been informing the public about the extent to which economists agree or disagree on important public policy issues. This week, we are delighted to announce that we are expanding the IGM Economic Experts Panel to add ten new distinguished economists. Like our other experts, these new panelists have impeccable qualifications to speak on public policy matters, and their names will be familiar to other economists and the media.

To give the public a broad sense of their views on policy issues, each new expert has responded to a selection of 16 statements that our panel had previously addressed. We chose these 16 statements, which cover a wide range of important policy areas, because the original panelists' responses to them were analyzed in a paper comparing the views of our economic experts with those of the American public. You can find that paper, by Paola Sapienza and Luigi Zingales, here. The paper, along with other analyses of the experts' views, was discussed during the American Economic Association annual meetings, and the video can be found here.

The new panelists' responses to these statements can be seen on their individual voting history pages. Our ten new economic experts are:

Abhijit Banerjee (MIT)
Markus K. Brunnermeier (Princeton)
Liran Einav (Stanford)
Amy Finkelstein (MIT)
Oliver Hart (Harvard)
Hilary Hoynes (Berkeley)
Steven N. Kaplan (Chicago)
Larry Samuelson (Yale)
Carl Shapiro (Berkeley)
Robert Shimer (Chicago)


Please note that, for the 16 previous topics on which these new panelists have voted, we left the charts showing the distribution of responses unchanged. Those charts reflect the responses that our original panelists gave at the time, and we have not altered them to reflect the views of the new experts.

We have also taken this opportunity to ask our original panelists whether they would vote differently on any of the statements we have asked about in the past. Several experts chose to highlight statements to which they would currently respond differently. In such cases, you will see this "revote" below the panelist's original vote. We think you will enjoy seeing examples of statements on which some experts have reconsidered.

As with the 16 previous statements voted on by new panelists, these "revote" responses are not reflected in the chart that we display showing the distribution of views for that topic: all the charts for previous questions reflect the distribution of views that the experts expressed when the statement was originally posed.

About the IGM Economic Experts Panel

This panel explores the extent to which economists agree or disagree on major public policy issues. To assess such beliefs we assembled this panel of expert economists. Statistics teaches that a sample of (say) 40 opinions will be adequate to reflect a broader population if the sample is representative of that population.

To that end, our panel was chosen to include distinguished experts with a keen interest in public policy from the major areas of economics, to be geographically diverse, and to include Democrats, Republicans and Independents as well as older and younger scholars. The panel members are all senior faculty at the most elite research universities in the United States. The panel includes Nobel Laureates, John Bates Clark Medalists, fellows of the Econometric society, past Presidents of both the American Economics Association and American Finance Association, past Democratic and Republican members of the President's Council of Economics, and past and current editors of the leading journals in the profession. This selection process has the advantage of not only providing a set of panelists whose names will be familiar to other economists and the media, but also delivers a group with impeccable qualifications to speak on public policy matters.

Finally, it is important to explain one aspect of our voting process. In some instances a panelist may neither agree nor disagree with a statement, and there can be two very different reasons for this. One case occurs when an economist is an expert on a topic and yet sees the evidence on the exact claim at hand as ambiguous. In such cases our panelists vote "uncertain". A second case relates to statements on topics so far removed from the economist's expertise that he or she feels unqualified to vote. In this case, our panelists vote "no opinion".

The Economic Experts Panel questions are emailed individually to the members of the panel, and each responds electronically at his or her convenience. Panelists may consult whatever resources they like before answering.

Members of the public are free to suggest questions (see link below), and the panelists suggest many themselves. Members of the IGM faculty are responsible for deciding the final version of each week’s question. We usually send a draft of the question to the panel in advance, and invite them to point out problems with the wording if they see any. In response, we typically receive a handful of suggested clarifications from individual experts. This process helps us to spot inconsistencies, and to reduce vagueness or problems of interpretation.

The panel data are copyrighted by the Initiative on Global Markets and are being analyzed for an article to appear in a leading peer-reviewed journal.

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