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The Beige Book and the Business Cycle: Using Beige Book Anecdotes to Construct Recession Probabilities

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  • Charles S. Gascon
  • Joseph Martorana

Abstract

The Federal Reserve releases the Beige Book prior to each Federal Open Market Committee meeting. The report is a narrative based on anecdotal and qualitative information collected from a wide range of contacts in each of the 12 Federal Reserve Districts. We take the lexicon approach to text analysis to create sentiment indexes that track changes in economic conditions from the very first Beige Book in May 1970 to the most recent (at the time of writing) in October 2024. We create additional indexes to account for various current-event shocks, such as political events or natural disasters that distort typical sentiment measures. We find that the real-time recession probabilities derived from a probit model featuring only the created sentiment and shock indexes are closely correlated with NBER recession periods, and more accurately indicate business cycle turning points than other widely cited measures. We find that the Beige Book can be used to promptly identify periods of economic recession as our model typically allows us to date business cycle turning points far in advance of the official announcements made by the National Bureau of Economic Research’s Business Cycle Dating Committee.

Suggested Citation

  • Charles S. Gascon & Joseph Martorana, 2024. "The Beige Book and the Business Cycle: Using Beige Book Anecdotes to Construct Recession Probabilities," Working Papers 2024-037, Federal Reserve Bank of St. Louis, revised 06 Dec 2024.
    • Handle: RePEc:fip:fedlwp:99162
    DOI: 10.20955/wp.2024.037
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    References listed on IDEAS

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    1. Balke, Nathan S & Petersen, D'Ann, 2002. "How Well Does the Beige Book Reflect Economic Activity? Evaluating Qualitative Information Quantitatively," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 34(1), pages 114-136, February.
    2. Zhihong Chen & Azhar Iqbal & Huiwen Lai, 2011. "Forecasting the probability of US recessions: a Probit and dynamic factor modelling approach," Canadian Journal of Economics, Canadian Economics Association, vol. 44(2), pages 651-672, May.
    3. Nathan S. Balke & Michael Fulmer & Ren Zhang, 2017. "Incorporating the Beige Book into a Quantitative Index of Economic Activity," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 36(5), pages 497-514, August.
    4. Lili Hao & Eric C.Y. Ng, 2011. "Predicting Canadian recessions using dynamic probit modelling approaches," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 44(4), pages 1297-1330, November.
    5. Ilias Filippou & Christian Garciga & James Mitchell & My T. Nguyen, 2024. "Regional Economic Sentiment: Constructing Quantitative Estimates from the Beige Book and Testing Their Ability to Forecast Recessions," Economic Commentary, Federal Reserve Bank of Cleveland, vol. 2024(08), pages 1-8, April.
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    7. repec:fip:fedcwq:98080 is not listed on IDEAS
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Beige Book; Federal Reserve System; sentiment analysis; recession; business cycle;
    All these keywords.

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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