IMF Working Papers

Scenario Synthesis and Macroeconomic Risk

By Tobias Adrian, Domenico Giannone, Matteo Luciani, Mike West

May 30, 2025

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Format: Chicago

Tobias Adrian, Domenico Giannone, Matteo Luciani, and Mike West. "Scenario Synthesis and Macroeconomic Risk", IMF Working Papers 2025, 105 (2025), accessed July 19, 2025, https://doi.org/10.5089/9798229009225.001

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Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

We develop methodology to bridge scenario analysis and risk forecasting, leveraging their respective strengths in policy settings. The methodology, rooted in Bayesian analysis, addresses the fundamental challenge of reconciling judgmental narrative approaches with statistical forecasting. Analysis evaluates explicit measures of concordance of scenarios with a reference forecasting model, delivers predictive synthesis of the scenarios to best match that reference, and addresses scenario set incompleteness. This provides a framework to systematically evaluate and integrate risks from different scenarios, aiding forecasting in policy institutions while supporting clear and rigorous communication of evolving risks. We also discuss broader questions of integrating judgmental information with statistical model-based forecasts in the face of as-yet unmodeled circumstances.

Subject: Capital markets, Economic and financial statistics, External sector statistics, Financial markets, Financial sector policy and analysis, Financial sector stability, Macroeconomic risks, Public financial management (PFM), Stress testing

Keywords: Nc 27708, Bayesian Predictive Synthesis, Capital markets, Constitution avenue NW, Durham, Entropic Tilting, External sector statistics, Financial sector stability, Forecast Risk Assessment, Global, Judgmental Forecasting, Macroeconomic Forecasting, Macroeconomic risks, Misclassification Rates, Mixtures of Scenarios, NY Fed, Risk forecasting, Scenario analysis, Scenario synthesis, Stress testing

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