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Quantifying priorities in business cycle reports: Analysis of recurring textual patterns around peaks and troughs

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  • Foltas, Alexander

Abstract

I propose a novel approach to uncover business cycle reports' priorities and relate them to economic fluctuations. To this end, I leverage quantitative business-cycle forecasts published by leading German economic research institutes since 1970 to estimate the proportions of latent topics in associated business cycle reports. I then employ a supervised approach to aggregate topics with similar themes, thus revealing the proportions of broader macroeconomic subjects. I obtain measures of forecasters' subject priorities by extracting the subject proportions' cyclic components. Correlating these priorities with key macroeconomic variables reveals consistent priority patterns throughout economic peaks and troughs. The forecasters prioritize inflation-related matters over recession-related considerations around peaks. This finding suggests that forecasters underestimate growth and overestimate inflation risks during contractive monetary policies, which might explain their failure to predict recessions. Around troughs, forecasters prioritize investment matters, potentially suggesting a better understanding of macroeconomic developments during those periods compared to peaks.

Suggested Citation

  • 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.
    • Handle: RePEc:zbw:pp1859:44
    DOI: 10.18452/27015
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    More about this item

    Keywords

    Macroeconomic forecasting; Evaluating forecasts; Business cycles; Recession forecasting; Topic Modeling; Natural language processing; Machine learning; Judgemental forecasting;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • C45 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Neural Networks and Related Topics

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