Scenario Analysis as a Tool for Communicating Risks in Macroeconomic Forecasts

Stephen Millard ()

No 584, National Institute of Economic and Social Research (NIESR) Discussion Papers from National Institute of Economic and Social Research

Abstract: In this paper, I examine how scenario analysis can improve the communication of risks in macroeconomic forecasting. Building on the Bernanke review, I evaluate four uses of scenarios: assessing policy interventions, illustrating specific forecast risks, addressing model uncertainty, and decomposing historical forecast errors. I argue that scenarios are most effective when used to convey distinct, narrative‐driven risks around a central forecast, offering clearer insights than fan charts alone in this case. However, I also argue that fan charts are useful for communicating general uncertainty. Overall, I find that narrative‐based scenario analysis is a powerful tool for communicating macroeconomic risks.

Keywords: Scenario analysis; Macroeconomic forecasting; Forecast uncertainty; Risk communication; Narrative-based analysis (search for similar items in EconPapers)
JEL-codes: C53 C54 E17 (search for similar items in EconPapers)
Date: 2026-08
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Persistent link: https://EconPapers.repec.org/RePEc:nsr:niesrd:584

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