Forecasters who make predictions without regard to past experience have no benchmarks to distinguish between what is radically different about their expectations and what experience has already taught us. Although the future will never replicate the past, analysis of long historical periods is the basic tool for forecasters. In this article, comparison of a set of major U.S. macro-economic variables and capital market returns over a sequence of 20-year periods (beginning with 1873-1893) highlights that inflation is critical. Real, inflation-adjusted data often bear only a vague resemblance to the nominal data from which they were derived.
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