(Almost) 200 Years of News-Based Economic Sentiment
48 Pages Posted: 29 Oct 2022 Last revised: 23 Mar 2023
Date Written: October 28, 2022
Using the text of 200 million pages of 13,000 US local newspapers and state-of-the-art machine learning methods, we construct a novel 170-year-long time series measure of economic sentiment at the country and state levels, that expands the existing measures in both the time series (by more than a century) and the cross-section. We show that our measure predicts economic fundamentals such as GDP (both nationally and locally), consumption, and employment growth, even after controlling for commonly-used predictors, and materially predicts monetary policy decisions, particularly during recessions. Our measure is distinct from the information in expert forecasts and leads its consensus value. We use the text to isolate information about current and future events and show that it is the latter that drives our predictability results.
Keywords: Business cycle, macroeconomic news, economic sentiment, monetary policy, textual analysis, machine learning, big data, neural networks
JEL Classification: G1, G4, E2
Suggested Citation: Suggested Citation