Risks and Uncertainty in Monetary Policy

Tobias Adrian, Domenico Giannone, Matteo Luciani and Mike West ()
Additional contact information
Matteo Luciani: https://www.federalreserve.gov/econres/matteo-luciani.htm
Mike West: https://stat.duke.edu/research/west

No 2026-061, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: Central banks monitor macroeconomic risk through two traditions: scenario analysis, regularly used since the mid-1990s, and distributional forecasting, practiced since the late 1960s. The two are complementary but separate: scenarios provide narratives without probabilities, while predictive distributions provide probabilities with limited economic interpretation. Treating baseline forecasts and scenarios as conditional predictive densities, and distributional forecasts as reference predictive distributions, places both within a common framework and clarifies their roles. The Scenario Synthesis assigns weights to scenarios consistent with the reference distribution, offering a practical and reproducible tool for risk assessment and policy deliberation under deep uncertainty.

Keywords: scenarios; fan charts; growth-at-risk; model uncertainty; Bayesian predictive synthesis (search for similar items in EconPapers)
JEL-codes: C1 C11 C53 E32 E37 E58 (search for similar items in EconPapers)
Pages: 52 p.
Date: 2026-09-01
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:103751

DOI: 10.17016/FEDS.2026.061

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