Norges Bank

Working Paper

Nowcasting using news topics. Big Data versus big bank

Author:
Leif Anders Thorsrud
Series:
Working Paper
Number:
20/2016

Abstract:

The agents in the economy use a plethora of high frequency information, including news media, to guide their actions and thereby shape aggregate economic fluctuations. Traditional nowcasting approches have to a relatively little degree made use of such information. In this paper, I show how unstructured textual information in a business newspaper can be decomposed into daily news topics and used to nowcast quarterly GDP growth. Compared with a big bank of experts, here represented by official central bank nowcasts and a state-of-the-art forecast combination system, the proposed methodology performs at times up to 15 percent better, and is especially competitive around important business cycle turning points. Moreover, if the statistical agency producing the GDP statistics itself had used the news-based methodology, it would have resulted in a less noisy revision process. Thus, news reduces noise.

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ISSN 1502-8190 (online)

Published 22 December 2016 10:00
Published 22 December 2016 10:00