Predicting Probability of Soft-Landing, Stagflation and Monetary Policy Pivots

Azhar Iqbal

World Economics, 2024, vol. 25, issue 4, 85-120

Abstract: The study introduces a new framework to predict the probability of stagflation, soft-landing, and recession. It identifies 13 episodes each of stagflation and soft-landings in the U.S. economy post-1950, and notes 11 recessions as suggested by the NBER. An ordered probit framework is used to generate one-year-out probabilities for stagflation, recession, and soft-landing, with accurate predictions in the post-1980 period. A new method identifies 26 episodes of monetary policy pivots post-1990, and a probit model predicts the six-month-out probability of such pivots. The study presents a framework to predict the fed funds rate up to four FOMC meetings out, comparing its accuracy with FOMC and Blue-Chip forecasts.

Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:wej:wldecn:937

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