Experience Stern | Faculty & Research

There are currently four scenarios for the global economic outlook. Three of these entail potentially serious risks with far-reaching implications for markets.

The most positive is a “soft landing,” where central banks in the advanced economies manage to bring inflation back down to their 2% targets without triggering a recession. There is also the possibility of a softish landing. Here the inflation target is achieved, but through a relatively mild (short and shallow) recession.

The third scenario is a hard landing, where returning to 2% inflation requires a protracted recession with potentially severe financial instability (such as more bank distress and highly leveraged agents suffering serious debt-servicing difficulties). If the effort to tame inflation triggers severe economic and financial instability, a fourth scenario becomes possible: central banks wimp out and decide to allow for above-target inflation, risking a de-anchoring of inflation expectations and a persistent wage-price spiral.

Read the full Project Syndicate article.
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Nouriel Roubini is a Professor Emeritus of Economics and International Business and the Robert Stansky Research Faculty Fellow.