Words are the New Numbers: A Newsy Coincident Index of Business Cycles

53 Pages Posted: 19 Jan 2017

See all articles by Leif Anders Thorsrud

Leif Anders Thorsrud

Norges Bank; BI Norwegian Business School

Date Written: December 22, 2016


I construct a daily business cycle index based on quarterly GDP and textual information contained in a daily business newspaper. The newspaper data are decomposed into time series representing newspaper topics using a Latent Dirichlet Allocation model. The business cycle index is estimated using the newspaper topics and a time-varying Dynamic Factor Model where dynamic sparsity is enforced upon the factor loadings using a latent threshold mechanism. The resulting index is shown to be not only more timely but also more accurate than commonly used alternative business cycle indicators. Moreover, the derived index provides the index user with broad based high frequent information about the type of news that drive or reflect economic fluctuations.

Keywords: Business cycles, Dynamic Factor Model, Latent Dirichlet Allocation (LDA)

JEL Classification: C11, C32, E32

Suggested Citation

Thorsrud, Leif Anders, Words are the New Numbers: A Newsy Coincident Index of Business Cycles (December 22, 2016). Norges Bank Working Paper 21/2016. Available at SSRN: https://ssrn.com/abstract=2901452 or http://dx.doi.org/10.2139/ssrn.2901452

Leif Anders Thorsrud (Contact Author)

Norges Bank ( email )

P.O. Box 1179
Oslo, N-0107

BI Norwegian Business School ( email )

Nydalsveien 37
Oslo, 0442

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