Friday, February 26, 2016

Humbling News for Macro-Finance Forecasters

The two graphs below, one from Deutsche Bank for the U.S. 10-year bond yield and one from the IMF for global real GDP growth, speak for themselves. Forecasting through large structural change is always difficult; maybe the means to which the forecasts should revert have now shifted lower. On the other hand, it's not obvious that we are experiencing a large structural change -- maybe we were just hit by a long and unlikely sequence of negative shocks, and the mean reversion embedded in the forecasts was ex ante rational even if ex post incorrect. 

Screen Shot 2016 02 24 at 7.05.40 AM

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