XXVI Edition

14-15-16 December 2017"

Reading between the Lines: Using Media to Improve German Inflation Forecasts

Ulbricht Dirk, iff Hamburg

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.

Area: Monetary Policy and Central Banking

Keywords: in ation prediction, media sentiment indicators, news reports, real-time forecasting.

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