Using Newspapers for Textual Indicators: Guidance Based on Spanish- and Portuguese-Speaking Countries

This paper investigates the role that two key methodological choices play in the construction of dictionary-based indicators: the selection of local versus foreign newspapers, and the breadth of the press coverage (i.e. the amount of newspapers considered). The large literature in this field is almost silent about the robustness of research results to these two choices. These questions are relevant since the production of newspaper-based economic indicators is growing fast. We use as a case study the well-known economic policy uncertainty (EPU) index, taking as examples the six largest Latin American economies (Argentina, Brazil, Chile, Colombia, Mexico and Peru) and Spain. First, we develop EPU measures based on press with different levels of proximity, i.e. local versus foreign, and corroborate that they deliver broadly similar narratives. Second, we examine the macroeconomic effects of EPU shocks computed using these different sources by means of a structural Bayesian vector autoregression framework and find similar responses from the statistical point of view. These two applications should reassure researchers that they can rely on foreign sources to construct EPU indexes. This option may foster the comparability of results across countries and lay the groundwork for cross-country studies of uncertainty. Finally, we show that constructing EPU indexes based on only one newspaper, an option followed by many studies, may yield biased responses. Increasing the number of sources reduces the chances of obtaining biased responses. This suggests that it is important to maximize the breadth of the press coverage when building text-based indicators, since this would improve the robustness and credibility of results.