Working Paper

Words are the new numbers: A newsy coincident index of business cycles

Author: Leif Anders Thorsrud
Series: Working Paper
Number: 21/2016

Working Paper 21/2016 (PDF 6.1 Mb)


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.

Published 22 December 2016 10:00