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Working Paper
Stagflation and Topsy-Turvy Capital Flows
Are unregulated capital flows excessive during a stagflation episode? We argue that they likely are, owing to a macroeconomic externality operating through the economy’s supply side. Inflows raise domestic wages through a wealth effect on labor supply and cause unwelcome upward pressure on marginal costs in countries where monetary policy is trying to drive down costs to stabilize inflation. Yet, market forces are likely to generate such inflows. Optimal capital flow management instead requires net outflows, suggesting topsy-turvy capital flows following markup shocks.
Working Paper
Soft Landing or Stagflation? A Framework for Estimating the Probabilities of Macro Scenarios
Amid ongoing trade policy shifts and geopolitical uncertainty, concerns about stagflation have reemerged as a key macroeconomic risk. This paper develops a probabilistic framework to estimate the likelihood of stagflation versus soft landing scenarios over a four-quarter horizon. Building on Bekaert, Engstrom, and Ermolov (2025), the model integrates survey forecasts, structural shock decomposition, and a non-Gaussian BEGE-GARCH approach to capture time-varying volatility and skewness. Results suggest that the probability of stagflation was elevated at around 30 percent in late 2022, while ...