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A textual analysis of Bank of England growth forecasts

Author

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  • Jones, Jacob T.
  • Sinclair, Tara M.
  • Stekler, Herman O.

Abstract

The Bank of England publishes a quarterly Inflation Report that provides numerical forecasts and a text discussion of its assessment of the UK economy. Previous research has evaluated the quantitative forecasts that are included in these reports, but we focus on the qualitative discussion of output growth, by using an in-sample textual analysis procedure to convert these qualitative assessments into a score for each report over the period 2005–2014. We also construct out-of-sample scores for reports before and after this period. We then compare the scores both to real-time output growth data and to the corresponding quantitative projections published by the bank. We find that overall developments in the UK economy were represented accurately in the text of the Inflation Report. Furthermore, efficiency regressions suggest that there is information in the text that could improve the Bank of England’s quantitative nowcasts and one-quarter-ahead forecasts.

Suggested Citation

  • Jones, Jacob T. & Sinclair, Tara M. & Stekler, Herman O., 2020. "A textual analysis of Bank of England growth forecasts," International Journal of Forecasting, Elsevier, vol. 36(4), pages 1478-1487.
    • Handle: RePEc:eee:intfor:v:36:y:2020:i:4:p:1478-1487
    DOI: 10.1016/j.ijforecast.2019.05.015
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    Cited by:

    1. Müller, Karsten, 2020. "German forecasters' narratives: How informative are German business cycle forecast reports?," Working Papers 23, German Research Foundation's Priority Programme 1859 "Experience and Expectation. Historical Foundations of Economic Behaviour", Humboldt University Berlin.
    2. Simionescu, Mihaela, 2022. "Econometrics of sentiments- sentometrics and machine learning: The improvement of inflation predictions in Romania using sentiment analysis," Technological Forecasting and Social Change, Elsevier, vol. 182(C).
    3. Karsten Müller, 2022. "German forecasters’ narratives: How informative are German business cycle forecast reports?," Empirical Economics, Springer, vol. 62(5), pages 2373-2415, May.
    4. Clements, Michael P. & Reade, J. James, 2020. "Forecasting and forecast narratives: The Bank of England Inflation Reports," International Journal of Forecasting, Elsevier, vol. 36(4), pages 1488-1500.
    5. Nélida Díaz Sobrino & Corinna Ghirelli & Samuel Hurtado & Javier J. Pérez & Alberto Urtasun, 2020. "The narrative about the economy as a shadow forecast: an analysis using Banco de España quarterly reports," Working Papers 2042, Banco de España.
    6. Christopher A. Hollrah & Steven A. Sharpe & Nitish R. Sinha, 2020. "The Power of Narratives in Economic Forecasts," Finance and Economics Discussion Series 2020-001, Board of Governors of the Federal Reserve System (U.S.).
    7. Rambaccussing, Dooruj & Kwiatkowski, Andrzej, 2020. "Forecasting with news sentiment: Evidence with UK newspapers," International Journal of Forecasting, Elsevier, vol. 36(4), pages 1501-1516.
    8. Foltas, Alexander, 2023. "Quantifying priorities in business cycle reports: Analysis of recurring textual patterns around peaks and troughs," Working Papers 44, German Research Foundation's Priority Programme 1859 "Experience and Expectation. Historical Foundations of Economic Behaviour", Humboldt University Berlin.

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    More about this item

    Keywords

    Forecast evaluation; Qualitative forecasting; Great Recession; GDP forecasts; Inflation Report;
    All these keywords.

    JEL classification:

    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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