Discussion paper

DP12579 Structural Scenario Analysis with SVARs

Macroeconomists seeking to construct conditional forecasts often face a choice between taking a stand on the details of a fully-specified structural model or relying on empirical correlations from vector autoregressions and remain silent about the underlying causal mechanisms. This paper develops tools for constructing ``structural scenarios'' that can be given an economic interpretation using identified structural VARs. We provide a unified and transparent treatment of conditional forecasting and structural scenario analysis and relate our approach to entropic forecast tilting. We advocate for a careful treatment of uncertainty, making the methods suitable for density forecasting and risk assessment. We also propose a metric to assess and compare the plausibility of alternative scenarios. We illustrate our methods with two applications: assessing the power of forward guidance about future interest rate policies and stress testing the reaction of bank profitability to an economic recession.


Antolin-Diaz, J, I Petrella and J Rubio-Ramírez (2018), ‘DP12579 Structural Scenario Analysis with SVARs‘, CEPR Discussion Paper No. 12579. CEPR Press, Paris & London. https://cepr.org/publications/dp12579