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Amid Rising Bond Yields, Six Experts Look Ahead

 

On February 4, 1996, the 30-year Treasury bond yield increased to 40%, its highest level in four months. The WSJ asked some "experts" about their forecast of yield at year-end. Below are their reported estimates:

 

Name Projection of yield at year-end
Wayne Angell, chief economist

Bear Stearns

6.40%
Ed Yardeni, chief economist

Deutsche Morgan Grenfell/C.J. Lawrence

5.00
Donald Straszheim, chief economist

Merrill Lynch

6.00
Rajiv Sobti, head of quantitative research

Donaldson, Lufkin & Jenrette

6.75
Ed McKelvey, senior economist

Goldman Sachs

6.75

 

Q: What does this suggest to you?

A: Obviously, interest rate forecasting is very difficult and seems to depend heavily on the specific assumptions that the forecaster makes.

Q: If you were to form your own "view" about yields, what might you do with these numbers?

A: A simple answer might be take the average of these numbers. However, there might be a better solution. Instead of using a simple average, you might want to use a "weighted" average, i.e., assigning different "credibilities" to the forecasts. But how might one come up with a weighting scheme? At least on an intuitive level, you might give more relative weight to the one who historically had "better" forecasts, or the one who has been more accurate in the recent past. Technically, you can use statistical techniques to put more rigor into these intuitive explanations.

Source: WSJ, 2/26/96, p. C1

 

On a Lighter Note

 Q: Why did God create economists ?

 A: In order to make weather forecasters look good.

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 Economists have forecasted 9 out of the last 5 recessions.

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We have 2 classes of forecasters: Those who don't know . . . and those who don't know they don't know.

 - John Kenneth Galbraith


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