Reading between the Lines: Using Media to Improve German Inflation Forecasts

22 Pages Posted: 19 May 2017

See all articles by Benjamin Beckers

Benjamin Beckers

German Institute for Economic Research (DIW Berlin)

Konstantin A. Kholodilin

German Institute for Economic Research (DIW Berlin)

Dirk Ulbricht

German Institute for Economic Research (DIW)

Date Written: April 28, 2017

Abstract

In this paper, we examine the predictive ability of automatic and expert-rated media sentiment indicators for German inflation. We find that sentiment indicators are competitive in providing inflation forecasts against a large set of common macroeconomic and financial predictors. Sophisticated linguistic sentiment algorithms and business cycle news rated by experts perform best and are superior to simple word-count indicators and autoregressive forecasts.

Keywords: inflation prediction, media sentiment indicators, news reports, real-time forecasting

JEL Classification: C53, E31, E37

Suggested Citation

Beckers, Benjamin and Kholodilin, Konstantin A. and Ulbricht, Dirk, Reading between the Lines: Using Media to Improve German Inflation Forecasts (April 28, 2017). DIW Berlin Discussion Paper No. 1665. Available at SSRN: https://ssrn.com/abstract=2970466 or http://dx.doi.org/10.2139/ssrn.2970466

Benjamin Beckers (Contact Author)

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstraße 58
Berlin, 10117
Germany

Konstantin A. Kholodilin

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstraße 58
Berlin, 10117
Germany

Dirk Ulbricht

German Institute for Economic Research (DIW) ( email )

Mohrenstraße 58
Berlin, 10117
Germany

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