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It’s in the News: Developing a Real Time Index for Economic Uncertainty Based on Finnish News Titles

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  • Avela, Aleksi
  • Lehmus, Markku

Abstract

Uncertainty may affect economic behavior of individuals and firms in a wide variety of ways, with typically negative consequences for economic growth. It is due to this fact, combined with rising political uncertainty observed lately in many countries, that uncertainty has gained increasing attention in economic literature, too. In this paper, we construct a measure of economic uncertainty for Finland based on Finnish news titles, collected from the YLE’s (the Finnish broadcasting company) website. To construct the index, we utilize machine learning and natural language processing (NLP) techniques, and in this paper, specifically, a transformed naive Bayes text classifier. On basis of the model evaluation, the constructed uncertainty index seems helpful in giving a timely assessment of the current state of the Finnish economy. We find a strong negative correlation between our index and the consumer confidence index by Statistics Finland, and most remarkably, our index seems to lead the consumer confidence index by one month.

Suggested Citation

  • Avela, Aleksi & Lehmus, Markku, 2020. "It’s in the News: Developing a Real Time Index for Economic Uncertainty Based on Finnish News Titles," ETLA Working Papers 84, The Research Institute of the Finnish Economy.
    • Handle: RePEc:rif:wpaper:84
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    References listed on IDEAS

    as
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    6. Keeney, Mary & Kennedy, Bernard & Liebermann, Joelle, 2012. "The value of hard and soft data for short-term forecasting of GDP," Economic Letters 11/EL/12, Central Bank of Ireland.
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    More about this item

    Keywords

    Economic uncertainty; Nowcasting; Machine learning; Natural language processing; Naive Bayes;
    All these keywords.

    JEL classification:

    • C45 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Neural Networks and Related Topics
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • E71 - Macroeconomics and Monetary Economics - - Macro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on the Macro Economy

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