Figure 1: The Two Approaches to Risk in the December 2018 Tealbook
(a) Alternative Scenarios - Real GDP Growth, 4-quarter percent
change
(b) Time-Varying Macroeconomic Risk - GDP Growth forecast error,
Percentage points
Note: Panel (a) reproduces the GDP panel from the Tealbook
exhibit “Forecast Confidence Intervals and Alternative Scenarios.” The
solid black line is the staff baseline projection, the shaded bands are
70 and 90 percent confidence intervals from FRB/US stochastic
simulations, and the colored lines trace the alternative scenarios
considered in December 2018, including a financial-based recession,
stronger supply side, supply constraints, greater interest-rate
sensitivity, foreign slowdown, and lower oil prices. Panel (b) reproduces the GDP panel from the exhibit
“Time-Varying Macroeconomic Risk.” The shaded areas represent the
predictive distribution of four-quarter-ahead Tealbook GDP growth
forecast errors, conditional on indicators of real activity, inflation,
financial market strain, and the volatility of high-frequency
macroeconomic indicators; the straight (dashed) line marks the median
(15th and 85th percentiles) of the unconditional distribution, while
gray bars indicate NBER recessions.
Source: Both panels are reproduced
from the “Risks and Uncertainty” chapter of the December 2018
Tealbook.
This figure has two panels. Panel (a) is a line chart of four-quarter real GDP growth from 2016 to 2024. A solid black baseline projection peaks near 3 percent in early 2019 and then declines toward about 1 to 2 percent. Around it are gray 70 percent and 90 percent confidence bands, as well as several alternative scenario paths. The scenarios fan out widely after 2018: one severe downside scenario drops below zero growth before recovering, while upside scenarios remain above the baseline for several years. The panel shows that the Tealbook scenario approach gives named economic narratives with very different growth paths. Panel (b) is a time series of a predictive distribution for GDP growth forecast errors from the late 1980s to 2018. Dark and light shaded bands show how the range of likely forecast errors changes over time around a median near zero. The distribution becomes much wider, and especially more negative, during recessions, with the sharpest downside widening around the 2008-09 financial crisis. The panel shows that the predictive-density approach provides probabilities and changing uncertainty over time, but not the narrative interpretation provided by the scenario paths in panel (a). Both panels are reproduced from the “Risks and Uncertainty” chapter of the December 2018 Tealbook.
Figure 2: Scenarios and Predictive Densities for December 2007
(a) Alternative Scenarios - Real GDP Growth, 4-quarter percent
change
(b) Probability Densities - 2008/2007 Real GDP Growth
Probabilities
Note: Panel (a) shows the Tealbook baseline projection
(thick black line) with seven alternative scenarios (colored lines) and
confidence intervals from FRB/US stochastic simulations. Panel (b) shows histogram probabilities for 2008/2007
GDP growth: red bars represent FRBNY staff judgmental assessment, blue
bars represent SPF consensus forecast.
Source: Panel (a) is reproduced from the December 5, 2007
Greenbook. Panel (b) is reproduced from
the December 7, 2007 NY Fed Blackbook (p. 67).
This figure has two panels. Panel (a) is a line chart of four-quarter real GDP growth from 2006 to 2009. The black baseline forecast falls from about 3 percent to near 1 percent in 2008, then gradually recovers. Gray confidence bands surround the baseline, and seven alternative scenarios trace different outcomes around it. Most scenarios remain positive, but one pronounced downside scenario falls below zero before rebounding. This panel shows that, in late 2007, the Federal Reserve staff considered several possible paths but kept most of them relatively close to the baseline. Panel (b) is a histogram of probabilities for 2008 over 2007 real GDP growth. Red bars show the FRBNY staff assessment, and blue bars show the Survey of Professional Forecasters. Both distributions place most of the probability on positive growth, but the FRBNY assigns noticeably more probability to weak or negative growth, while the SPF places more mass on growth around 2 to 3 percent. The panel highlights that different forecasters in December 2007 had materially different views about downside risk. Panel (a) is reproduced from the December 5, 2007 Greenbook. Panel (b) is reproduced from the December 7, 2007, NY Fed Blackbook (p. 67).
Figure 3: Reference – Baseline – Scenarios
Blackbook Reference
SPF Reference
Note: In the left panel, the solid black
line denotes the Blackbook Reference p.d.f. In the right panel, the
solid red line denotes the SPF Reference p.d.f. In both panels, the teal
dash-dotted line denotes the Baseline p.d.f., while the dashed lines
show the scenario p.d.f.s.
This figure shows two side-by-side probability density plots of 2008 fourth-quarter-over-fourth-quarter GDP growth. The left panel compares the Blackbook reference density with the baseline density and the scenario densities. The Blackbook reference is broader and more left-skewed than the baseline, with substantial probability mass on very low and negative growth. Most scenario densities remain clustered near the baseline around modest positive growth, although the Credit Crunch scenario is shifted left relative to the others. The scenario set, therefore, does not fully span the severe downside risk embedded in the Blackbook reference. The right panel repeats the comparison using the SPF reference density. The SPF reference is narrower and centered farther to the right than the baseline, with most probability concentrated on moderate positive growth. The scenario densities again cluster too tightly relative to the reference. Taken together, the two panels show that the December 2007 scenario set is too concentrated around the baseline to match either the Blackbook assessment of downside risk or the SPF assessment of relatively stronger growth.
Figure 4: Scenario Synthesis — Probability density functions - 2008 Q4/Q4 GDP
growth – Dec. 2007 Tealbook
Blackbook Reference
SPF Reference
Note: In the left panel, the solid black
line denotes the Blackbook Reference p.d.f.; in the right panel, the
solid red line denotes the SPF Reference p.d.f. In both panels, the blue
line denotes the Scenario Synthesis p.d.f.
This figure has two probability density plots for the 2008 fourth-quarter-over-fourth-quarter GDP growth. In the left panel, the Scenario Synthesis density (blue line) is compared with the Blackbook reference (black line). The synthesis improves on the baseline by shifting probability toward weaker outcomes, but it remains much narrower than the Blackbook reference and does not reproduce the large left tail. In other words, the synthesis still understates severe downside risk. In the right panel, the synthesis is compared with the SPF reference (red line). Here, the fit is closer, but the synthesis is centered somewhat to the left of the SPF reference and understates probability in the right tail. Across both panels, the figure shows that the same scenario set can be reweighted to move toward different references, but in December 2007, it cannot fully match either distribution because the available scenarios do not span the full range of risks.
Figure 5: Reference – Baseline – Scenarios – 2019 Q4/Q4 GDP growth – Dec. 2018
Tealbook
OaR Reference
TVMR Reference
Note: In the left panel, the solid black
line denotes the OaR Reference p.d.f. In the right panel, the solid red
line denotes the TVMR Reference p.d.f. In both panels, the teal
dash-dotted line denotes the Baseline p.d.f., while the dashed lines
show the scenario p.d.f.s.
This figure shows two side-by-side probability density plots of 2019 fourth-quarter-over-fourth-quarter GDP growth. The left panel compares the OaR reference density with the baseline and scenario densities. The OaR reference is close to the baseline in the center, but it has somewhat fatter tails and slightly more downside skewness. The scenario densities spread around the baseline, from a financial-recession scenario focused on negative growth to an upside, stronger-supply scenario focused on higher growth. The right panel compares the TVMR reference density with the same baseline and scenarios. The TVMR reference lies very close to the baseline and is somewhat tighter and more symmetric. Unlike the December 2007 case, both panels show that the baseline forecast in December 2018 is broadly aligned with the reference distributions, with the main differences coming from tail thickness and asymmetry rather than from large differences in the center of the distribution.
Figure 6: Scenario Synthesis — Probability density functions – 2019 Q4/Q4 GDP
growth – Dec. 2018 Tealbook
OaR Reference
TVMR Reference
This figure has two probability density plots for the 2019 fourth-quarter-over-fourth-quarter GDP growth. In the left panel, the Scenario Synthesis density almost overlaps the OaR reference across most of the distribution, with only small differences near the center and in the tails. In the right panel, the synthesis also closely tracks the TVMR reference, although it is a bit flatter and slightly wider than the reference peak. The main message is that the December 2018 scenario set spans the relevant GDP risks much better than the December 2007 scenario set. A suitable reweighting of the scenarios can closely reproduce either the OaR or the TVMR reference distribution.
Figure 7: Reference, Baseline, and Scenarios – Dec. 2018 Tealbook
2019 Q4/Q4 GDP growth
Q4/Q4 Core PCE price inflation
Note: In both panels, the solid black
line denotes the OaR Reference p.d.f. and the teal dash-dotted line
denotes the Baseline p.d.f. Dashed lines show the scenario p.d.f.s for
GDP growth (left panel) and core PCE price inflation (right panel). The
skew-\(t\) parameters reported in the
inset boxes (upper right of each panel) correspond to the location (lc),
scale (sc), skewness (sk), and degrees of freedom (df).
This figure has two marginal probability density plots. The left panel shows 2019 fourth-quarter-over-fourth-quarter GDP growth. The reference and baseline densities are centered close together, both around mid-2 percent growth, but the reference has somewhat fatter tails and slightly more downside skewness. The scenario densities spread to the left and right of the center, with the financial-recession scenario farthest to the left and the stronger-supply scenario farthest to the right. The right panel shows 2019 fourth-quarter-over-fourth-quarter core PCE inflation. Here, the difference between the reference and baseline is larger. The reference density is centered lower, is more dispersed, and has a longer right tail than the baseline, which is centered near 2 percent and is nearly symmetric. The scenario densities vary less in inflation than in GDP, although the supply-constraints scenario is clearly shifted toward higher inflation. The figure shows that, in the multivariate setting, disagreement about inflation risk is more important than disagreement about GDP risk.
Figure 8: Reference, Baseline, and Scenarios – Dec. 2018 Tealbook
Baseline and Scenarios as point forecasts
Baseline as bivariate distribution
This figure has two contour plots of the joint distribution of GDP growth on the horizontal axis and core PCE inflation on the vertical axis. In the left panel, shaded contours show the reference distribution, and colored points mark the baseline and the alternative scenarios as forecast pairs. The baseline sits near the center of the highest-density region. The scenario points are widely spaced along the GDP axis but more tightly clustered along the inflation axis. This means the scenario set offers more variation in output outcomes than in inflation outcomes. In the right panel, teal contours show the baseline joint distribution over the same shaded reference contours. The baseline captures the broad center of the reference reasonably well, but it does not reproduce the full shape of the reference distribution, especially the inflation asymmetry and the broader outer contours. The figure shows why multivariate synthesis is harder: matching the joint pattern of output and inflation risk requires scenarios that are well-placed in two dimensions, not just one.
Figure 9: Scenario Synthesis - Probability density function - GDP
growth and core inflation - Dec. 2018 Tealbook
This figure is a contour plot of the joint Scenario Synthesis distribution for GDP growth and core PCE inflation, overlaid on the shaded joint reference distribution. Orange contours mark the synthesis, and gray shaded regions mark the reference. The synthesis contours are centered in nearly the same region as the reference and reproduce the overall oval shape of the distribution, including the broad concentration around moderate GDP growth and inflation near 2 percent. However, the match is not exact: the synthesis remains somewhat tighter and does not fully capture every outer contour of the reference. The main takeaway is that, once both GDP and inflation are considered jointly, the Scenario Synthesis improves noticeably on the baseline and captures the main geometry of the reference distribution, but the fit is still imperfect because the available scenario set does not fully span all combinations of output and inflation risk.