Risk Scenarios and Macroeconomic Forecasts

Kevin Moran, Dalibor Stevanovic and Stéphane Surprenant

Staff Working Papers from Bank of Canada

Abstract: This paper discusses the usefulness of risk scenarios—forecasts conditional on specific future paths for economic variables and shocks—for monitoring the Canadian economy. To do so, we use a vector autoregressive (VAR) approach to produce macroeconomic forecasts conditional on four risk scenarios: high oil prices, a US recession, a tight labor market, and a restrictive monetary policy. The results show that these scenarios represent significant risk factors for the evolution of the Canadian economy. In particular, the high-oil-price scenario is beneficial for the Canadian economy, while a US recession induces a significant slowdown. The very tight labor market scenario leads to additional price increases relative to an unconditional forecast, and the restrictive monetary policy scenario increases the unemployment rate while lowering the inflation rate slightly.

Keywords: Econometric and statistical methods; Business fluctuations and cycles; Monetary policy (search for similar items in EconPapers)
JEL-codes: E32 F41 F44 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2025-10
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Working Paper: Risk Scenarios and Macroeconomic Forecasts (2025)
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Persistent link: https://EconPapers.repec.org/RePEc:bca:bocawp:25-28

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