IDEAS home Printed from https://ideas.repec.org/a/fip/fedcec/98247.html
   My bibliography  Save this article

Regional Economic Sentiment: Constructing Quantitative Estimates from the Beige Book and Testing Their Ability to Forecast Recessions

Author

Listed:

Abstract

We use natural language processing methods to quantify the sentiment expressed in the Federal Reserve's anecdotal summaries of current economic conditions in the national and 12 Federal Reserve District-level economies as published eight times per year in the Beige Book since 1970. We document that both national and District-level economic sentiment tend to rise and fall with the US business cycle. But economic sentiment is extremely heterogeneous across Districts, and we find that national economic sentiment is not always the simple aggregation of District-level sentiment. We show that the heterogeneity in District-level economic sentiment can be used, over and above the information contained in national economic sentiment, to better forecast US recessions.

Suggested Citation

  • Ilias Filippou & Christian Garciga & James Mitchell & My T. Nguyen, 2024. "Regional Economic Sentiment: Constructing Quantitative Estimates from the Beige Book and Testing Their Ability to Forecast Recessions," Economic Commentary, Federal Reserve Bank of Cleveland, vol. 2024(08), pages 1-8, April.
  • Handle: RePEc:fip:fedcec:98247
    DOI: 10.26509/frbc-ec-202408
    as

    Download full text from publisher

    File URL: https://doi.org/10.26509/frbc-ec-202408
    File Function: Persistent Link
    Download Restriction: no

    File URL: https://libkey.io/10.26509/frbc-ec-202408?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Balke, Nathan S & Petersen, D'Ann, 2002. "How Well Does the Beige Book Reflect Economic Activity? Evaluating Qualitative Information Quantitatively," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 34(1), pages 114-136, February.
    2. Carroll, Christopher D & Fuhrer, Jeffrey C & Wilcox, David W, 1994. "Does Consumer Sentiment Forecast Household Spending? If So, Why?," American Economic Review, American Economic Association, vol. 84(5), pages 1397-1408, December.
    3. Michael T. Owyang & Jeremy Piger & Howard J. Wall, 2015. "Forecasting National Recessions Using State‐Level Data," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 47(5), pages 847-866, August.
    4. Leif Anders Thorsrud, 2020. "Words are the New Numbers: A Newsy Coincident Index of the Business Cycle," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 38(2), pages 393-409, April.
    5. Souleles, Nicholas S, 2004. "Expectations, Heterogeneous Forecast Errors, and Consumption: Micro Evidence from the Michigan Consumer Sentiment Surveys," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(1), pages 39-72, February.
    6. Sadique, Shibley & In, Francis & Veeraraghavan, Madhu & Wachtel, Paul, 2013. "Soft information and economic activity: Evidence from the Beige Book," Journal of Macroeconomics, Elsevier, vol. 37(C), pages 81-92.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. repec:fip:fedcwq:98080 is not listed on IDEAS
    2. Shapiro, Adam Hale & Sudhof, Moritz & Wilson, Daniel J., 2022. "Measuring news sentiment," Journal of Econometrics, Elsevier, vol. 228(2), pages 221-243.
    3. Frank Westerhoff & Martin Hohnisch, 2010. "Consumer sentiment and countercyclical fiscal policies," International Review of Applied Economics, Taylor & Francis Journals, vol. 24(5), pages 609-618.
    4. Hatice Gökçe Karasoy Can & Çağlar Yüncüler, 2018. "The Explanatory Power and the Forecast Performance of Consumer Confidence Indices for Private Consumption Growth in Turkey," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 54(9), pages 2136-2152, July.
    5. repec:fip:fedhep:y:2013:i:qi:p:14-29:n:vol.37no.1 is not listed on IDEAS
    6. Dräger, Lena & Bui, Dzung & Nghiem, Giang & Hayo, Bernd, 2021. "Consumer Sentiment During the COVID-19 Pandemic," VfS Annual Conference 2021 (Virtual Conference): Climate Economics 242375, Verein für Socialpolitik / German Economic Association.
    7. Erik Kole & Liesbeth Noordegraaf-Eelens & Bas Vringer, 2019. "Cognitive Biases and Consumer Sentiment," Tinbergen Institute Discussion Papers 19-031/I, Tinbergen Institute, revised 21 Mar 2023.
    8. Larsen, Vegard H. & Thorsrud, Leif Anders & Zhulanova, Julia, 2021. "News-driven inflation expectations and information rigidities," Journal of Monetary Economics, Elsevier, vol. 117(C), pages 507-520.
    9. Frank H. Westerhoff, 2008. "Heuristic Expectation Formation And Business Cycles: A Simple Linear Model," Metroeconomica, Wiley Blackwell, vol. 59(1), pages 47-56, February.
    10. Dzung Bui & Lena Draeger & Bernd Hayo & Giang NghiemŸ, 2020. "Consumer Sentiment During the COVID-19 Pandemic: The Role of Others' Beliefs," MAGKS Papers on Economics 202049, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    11. Beckmann, Joscha & Jannsen, Nils, 2023. "Mediendaten für die Konjunkturanalyse," Kiel Insight 2023.11, Kiel Institute for the World Economy (IfW Kiel).
    12. Sarah Brown & Karl Taylor, 2006. "Financial expectations, consumption and saving: a microeconomic analysis," Fiscal Studies, Institute for Fiscal Studies, vol. 27(3), pages 313-338, August.
    13. Dilyara Ibragimova, 2014. "Consumer Expectations Of Russian Populations: Cohort Analysis (1996–2009)," HSE Working papers WP BRP 41/SOC/2014, National Research University Higher School of Economics.
    14. Binder, Carola Conces, 2020. "Long-run inflation expectations in the shrinking upper tail," Economics Letters, Elsevier, vol. 186(C).
    15. Robert B. Barsky & Eric R. Sims, 2012. "Information, Animal Spirits, and the Meaning of Innovations in Consumer Confidence," American Economic Review, American Economic Association, vol. 102(4), pages 1343-1377, June.
    16. Marina Matosec & Zdenka Obuljen Zoricic, 2019. "Identifying the Interdependence between Consumer Confidence and Macroeconomic Developments in Croatia," Interdisciplinary Description of Complex Systems - scientific journal, Croatian Interdisciplinary Society Provider Homepage: http://indecs.eu, vol. 17(2-B), pages 345-354.
    17. Bai, Xiwen & Lam, Jasmine Siu Lee & Jakher, Astha, 2021. "Shipping sentiment and the dry bulk shipping freight market: New evidence from newspaper coverage," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 155(C).
    18. Huang, Yu-Lieh & Kuan, Chung-Ming, 2021. "Economic prediction with the FOMC minutes: An application of text mining," International Review of Economics & Finance, Elsevier, vol. 71(C), pages 751-761.
    19. Lui, Silvia & Mitchell, James & Weale, Martin, 2011. "The utility of expectational data: Firm-level evidence using matched qualitative-quantitative UK surveys," International Journal of Forecasting, Elsevier, vol. 27(4), pages 1128-1146, October.
    20. Kajal Lahiri & Yongchen Zhao, 2016. "Determinants of Consumer Sentiment Over Business Cycles: Evidence from the US Surveys of Consumers," Journal of Business Cycle Research, Springer;Centre for International Research on Economic Tendency Surveys (CIRET), vol. 12(2), pages 187-215, December.
    21. Sarah Brown & Mark N. Harris & Christopher Spencer & Karl Taylor, 2024. "Financial Expectations and Household Consumption: Does Middle‐Inflation Matter?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 56(4), pages 741-768, June.
    22. Danso, Albert & Lartey, Theophilus & Amankwah-Amoah, Joseph & Adomako, Samuel & Lu, Qinye & Uddin, Moshfique, 2019. "Market sentiment and firm investment decision-making," International Review of Financial Analysis, Elsevier, vol. 66(C).

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fip:fedcec:98247. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: 4D Library (email available below). General contact details of provider: https://edirc.repec.org/data/frbclus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.