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Can we measure inflation expectations using Twitter?

Author

Listed:
  • Cristina Angelico

    (Bank of Italy)

  • Juri Marcucci

    (Bank of Italy)

  • Marcello Miccoli

    (International Monetary Fund)

  • Filippo Quarta

    (Bank of Italy)

Abstract

Using Italian data from Twitter, we employ textual data and machine learning techniques to build new real-time measures of consumers' inflation expectations. First, we select some relevant keywords to identify tweets related to prices and expectations thereof. Second, we build a set of daily measures of inflation expectations on the selected tweets combining the Latent Dirichlet Allocation (LDA) with a dictionary-based approach, using manually labelled bi-grams and tri-grams. Finally, we show that the Twitter-based indicators are highly correlated with both monthly survey-based and daily market-based inflation expectations. Our new indicators provide additional information beyond the market-based expectations, the professional forecasts, and the realized inflation, and anticipate consumers' expectations proving to be a good real-time proxy. Results suggest that Twitter can be a new timely source to elicit beliefs.

Suggested Citation

  • Cristina Angelico & Juri Marcucci & Marcello Miccoli & Filippo Quarta, 2021. "Can we measure inflation expectations using Twitter?," Temi di discussione (Economic working papers) 1318, Bank of Italy, Economic Research and International Relations Area.
    • Handle: RePEc:bdi:wptemi:td_1318_21
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    More about this item

    Keywords

    inflation expectations; Twitter data; text mining; big data; survey-based measures; market-based measures; forecasting;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • C55 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Large Data Sets: Modeling and Analysis
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • 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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