Reading between the Lines: Using Media to Improve German Inflation Forecasts
22 Pages Posted: 19 May 2017
Date Written: April 28, 2017
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
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