The IU forecast is between these two extremes. Another risk to the forecast is instability in financial markets. Within a week of that date, the stock market experienced a major sell-off, dropping over 550 points, and has since rebounded somewhat. Clearly, further decline in equity prices is possible. But in many ways, the situation now is different from 1987, IU economists point out.
Interest rates are substantially lower, as is inflation.
The government budget, which then had a large deficit, is now essentially in balance. Problems could also arise in the international realm. The currency turmoil in the Far East is troubling, and there was a hint of a trade war with Japan in mid-October. The annual forecast of economic conditions is prepared by a group of IU economists and business professors who specialize in analyzing national and state business conditions. The starting point for the forecast is the Indiana Econometric Model, which combines state statistics and a national forecast to develop projections for the coming year.