The Power of Text-based Indicators in Forecasting the Italian Economic Activity

57 Pages Posted: 25 May 2021

See all articles by Valentina Aprigliano

Valentina Aprigliano

Bank of Italy

Simone Emiliozzi

Bank of Italy

Gabriele Guaitoli

University of Warwick - Department of Economics

Andrea Luciani

Bank of Italy

Juri Marcucci

Bank of Italy

Libero Monteforte

Bank of Italy

Date Written: March 16, 2021

Abstract

Can we use newspaper articles to forecast economic activity? Our answer is yes and, to this end, we propose a brand new economic dictionary in Italian with valence shifters, and we apply it to a corpus of about two million articles from four popular newspapers. We produce a set of high-frequency text-based sentiment and policy uncertainty indicators (TESI and TEPU respectively), which are constantly updated, not revised and computed both for the whole economy and for specific sectors or economic topics. To test the predictive power of our text-based indicators, we propose two forecasting exercises. First, by using Bayesian Model Averaging (BMA) techniques, we show that our monthly text-based indicators greatly reduce the uncertainty surrounding the short-term forecasts of the main macroeconomic aggregates, especially during recessions. Secondly, we employ these indices in a weekly GDP growth tracker, achieving sizeable gains in forecasting accuracy in both normal and turbulent times.

Keywords: Forecasting, Text Mining, Sentiment, Economic Policy Uncertainty, Big data, BMA

JEL Classification: C11, C32, C43, C52, C55, E52, E58

Suggested Citation

Aprigliano, Valentina and Emiliozzi, Simone and Guaitoli, Gabriele and Luciani, Andrea and Marcucci, Juri and Monteforte, Libero, The Power of Text-based Indicators in Forecasting the Italian Economic Activity (March 16, 2021). Bank of Italy Temi di Discussione (Working Paper) No. 1321, Available at SSRN: https://ssrn.com/abstract=3852349 or http://dx.doi.org/10.2139/ssrn.3852349

Valentina Aprigliano (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Simone Emiliozzi

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Gabriele Guaitoli

University of Warwick - Department of Economics ( email )

Coventry CV4 7AL
United Kingdom

Andrea Luciani

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Juri Marcucci

Bank of Italy ( email )

Via Nazionale , 91
Rome, 00184
Italy
+39-06-4792-4069 (Phone)

Libero Monteforte

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
49
Abstract Views
308
PlumX Metrics