Rationality of Naive Forecasts of Long-Term Rates

Abstract

Brooks and Gray in the Fall 2004 JPM examined the accuracy of economists' long-term interest rate forecasts in Wall Street Journal surveys. They concluded that no-change naive forecasts were better than the consensus WSJ forecasts. In fact, no-change forecasts are not naive forecasts but instead rational economic forecasts. We should thus extend the Brooks and Gray conclusions that no-change forecasts are better than economists' consensus forecasts of the long-term Treasury rate to other long-term interest rates.

TOPICS: Information providers/credit ratings, interest-rate and currency swaps