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Measuring News Sentiment

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We develop and assess new time series measures of economic sentiment based on computational text analysis of economic and financial newspaper articles from January 1980 to April 2015. The text analysis is based on predictive models estimated using machine learning techniques from Kanjoya. We analyze four alternative news sentiment indexes. We find that the news sentiment indexes correlate strongly with contemporaneous business cycle indicators. We also find that innovations to news sentiment predict future economic activity. Furthermore, in most cases, the news sentiment measures outperform the University of Michigan and Conference board measures in predicting the federal funds rate, consumption, employment, inflation, industrial production, and the S&P500. For some of these economic outcomes, there is evidence that the news sentiment measures have significant predictive power even after conditioning on these survey-based measures.

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  • Shapiro, Adam Hale & Sudhof, Moritz & Wilson, Daniel J., 2017. "Measuring News Sentiment," Working Paper Series 2017-1, Federal Reserve Bank of San Francisco.
  • Handle: RePEc:fip:fedfwp:2017-01
    DOI: 10.24148/wp2017-01
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    1. 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.
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    12. 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.
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    Cited by:

    1. Vegard Høghaug Larsen & Leif Anders Thorsrud, 2018. "Business cycle narratives," Working Papers No 6/2018, Centre for Applied Macro- and Petroleum economics (CAMP), BI Norwegian Business School.

    More about this item

    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

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