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Identifying scenarios of interest under deep uncertainty

Author

Listed:
  • Jan Kwakkel
  • Willem L. Auping
  • Jan Willem van den End

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.

Suggested Citation

  • Jan Kwakkel & Willem L. Auping & Jan Willem van den End, 2026. "Identifying scenarios of interest under deep uncertainty," Working Papers 860, DNB.
    • Handle: RePEc:dnb:dnbwpp:860
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    References listed on IDEAS

    as
    1. Bank for International Settlements, 2025. "Monetary policy decision-making and communication under high uncertainty," BIS Papers, Bank for International Settlements, number 163.
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    Keywords

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    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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