Identifying scenarios of interest under deep uncertainty

Jan Kwakkel, Willem L. Auping and Jan Willem van den End

Working Papers from DNB

Abstract: We introduce Exploratory Modelling and Analysis (EMA) as a framework for macroeconomic scenario analysis under deep uncertainty. EMA traces scenarios of interest from policy‑relevant outcomes. These outcomes are forecasted by a model, based on a large set of uncertain conditioning variables. This approach flips the conventional method of scenario analysis, by sampling many scenarios without imposing strong ex‑ante priors on the choice, combination, value, or distribution of the conditioning variables. Applying EMA with an interacted VAR model to financial stress scenarios for the euro area shows that scenarios of interest can be uncovered that may be overlooked by common approaches for scenario analysis.

Keywords: Financial shocks; Scenarios; Exploratory modelling; Deep uncertainty (search for similar items in EconPapers)
JEL-codes: E52 E58 G12 (search for similar items in EconPapers)
Date: 2026-04
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Persistent link: https://EconPapers.repec.org/RePEc:dnb:dnbwpp:860

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