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Thursday, May 28, 2009

Not All Economists Are Bad

In my post yesterday, I poked a bit of fun at economists and their constant efforts to predict the future, even though they aren't very good at it.  That said, there are many economists whom I admire and look to for help in understanding the nature of the economy.  One of them is Harvard economist Greg Mankiw, who writes a blog that I read often. Yesterday he commented on the current steepness of the yield curve.  

The yield curve is one of the more important economic indicators to understand. It shows the difference in interest rates between short-term bonds and longer-term bonds. Its current shape suggests that investors are pricing in economic recovery in their current appetite for risk.  However, we need to remember that indicators like this are just that, indicators.  They may indicate future economic activity, but they do not provide enough information to predict exactly how and when economic recovery will take place.