Using newspapers for textual indicators: which and how many?

This paper investigates the role that two key methodological choices play in the construction of textual indicators: the selection of local versus foreign newspapers and the breadth of the press coverage (i.e. the number of newspapers considered). The large literature in this field is almost silent about the robustness of research results to these two choices. We use as a case study the well-known economic policy uncertainty (EPU) index, taking as examples Latin America 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. Third, we show that constructing EPU indexes based on only one newspaper may yield biased responses. This suggests that it is important to maximize the breadth of press coverage when building text-based indicators, since this improves the credibility of results. In this regard, our first and second results are good news for researchers, given that they provide a justification for the combined use of a larger amount of data from local and foreign sources.