Accounting for Uncertainty and Risks in Monetary Policy

This paper discusses the measurement, assessment, and communication of risks and uncertainty that are relevant for monetary policy. It provides a taxonomy of policy-relevant uncertainty related to the state and the structure of the economy, and the formation of expectations. A wide range of tools is available to assess and quantify uncertainty and the balance of risks. Qualitative assessments of uncertainty-in policy statements, minutes, and speeches-are the main tools to communicate uncertainty and the balance of risks across major central banks. However, the use of quantitative tools for such communications including scenario analysis-is evolving, and so far no clear consensus has emerged for best practices.

Suggested citation:

Bauer, Michael, Travis Berge, Giuseppe Fiori, Francesca Loria, and Molin Zhong. 2025. "Accounting for Uncertainty and Risks in Monetary Policy." Federal Reserve Bank of San Francisco Working Paper 2025-19. https://doi.org/10.24148/wp2025-19