Why So Many People Got This Year's Economy Wrong
Odd Lots
*Modelling recession probability *
The recession probability models used by economists include empirical models and theoretical frameworks such as general equilibrium models and large-scale models. The shock model mimics the Fed's general equilibrium model and suggests that the effects of monetary rate hikes on the labor market should occur over 18 to 24 months. Another cutting-edge model by Bauer and Swanson found that the effects of monetary policy are much shorter, with industrial production declining in line with the model's predictions. This model also indicates that inflation now responds faster to Fed's rate hikes. However, the models suggest that the effects of rate hikes are yet to peak in the labor and credit markets, which could be why many do not predict a recession this year.
