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