Scenario Analysis as a Tool for Communicating Risks in Macroeconomic Forecasts

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.