Bringing Social-Psychological Variables into Economic Modelling: Uncertainty, Animal Spirits and the Recovery from the Great Recession

Tuckett, David; Ormerod, Paul; Smith, Robert E.; Nyman, Rickard

doi:10.2139/ssrn.2408155

Cited by 5 publications

(6 citation statements)

References 37 publications

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“…Research suggests that positive and negative sentiment from newspaper narrative is an effective tool for monitoring the economic cycle [46,52]. Similarly, newspaper narrative is found to precede a change in economic variables with low frequency shifts correlating well with financial market events.…”

Section: Literature Reviewmentioning

confidence: 99%

“…A recent theoretical development -known as Conviction Narrative Theory (CNT) -draws on the concept that to be sufficiently confident to act, agents create narratives supporting their expectations of the outcome of their actions [40]. For instance, a study on CNT tracks changes in narrative and shows that they precede changes in economic growth [52].…”

Section: Introductionmentioning

confidence: 99%

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Macroeconomic forecasting through news, emotions and narrative

Tilly,

Ebner,

Livan

2020

Preprint

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This study forecasts industrial production and consumer prices leveraging narrative and sentiment from global newspapers. Existing research includes positive and negative tone only to improve macroeconomic forecasts, focusing predominantly on large economies such as the US. These works use mainly anglophone sources of narrative, thus not capturing the entire complexity of the multitude of emotions contained in global news articles. This study expands the existing body of research by incorporating a wide array of emotions from newspapers around the world -extracted from the Global Database of Events, Language and Tone (GDELT) [32] -into macroeconomic forecasts. We present a thematic data filtering methodology based on a bi-directional long short term memory neural network (Bi-LSTM) for extracting emotion scores from GDELT and demonstrate its effectiveness by comparing results for filtered and unfiltered data. We model industrial production and consumer prices across a diverse range of economies using an autoregressive framework, and find that including emotions from global newspapers significantly improves forecasts compared to an autoregressive benchmark model. We complement our forecasts with an interpretability analysis on distinct groups of emotions and find that emotions associated with surprise and happiness have the strongest predictive power for the variables we predict.

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Section: Literature Reviewmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Macroeconomic forecasting through news, emotions and narrative

Tilly,

Ebner,

Livan

2020

Preprint

View full text Add to dashboard Cite

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“…Our analysis highlights the importance of both news narrative for fluctuations in a country's BEIR, with cross-country spillovers of news narrative observed in movements of the US and German BEIR. The findings suggest that variables derived from news narrative capture the market's "animal spirits" (Keynes, 1936;Shiller, 2017;Tuckett et al, 2014).…”

Section: Cross-country Impact Of Narrative On Beirmentioning

confidence: 99%

“…Indeed, Shiller suggested that viral narratives have a direct causal effect on economic activity (Shiller, 2017). More recently, Conviction Narrative Theory (CNT) has been proposed to illustrate how changes in narrative are a precursor to changes in financial markets and the economy (Tuckett et al, 2014).…”

Section: Introductionmentioning

confidence: 99%

Predicting market inflation expectations with news topics and sentiment

Tilly¹,

Livan²

2021

Preprint

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This study presents a novel approach to incorporating news topics and their associated sentiment into predictions of breakeven inflation rate (BEIR) movements for eight countries with mature bond markets. We calibrate five classes of machine learning models including narrative-based features for each country, and find that they generally outperform corresponding benchmarks that do not include such features. We find Logistic Regression and XGBoost classifiers to deliver the best performance across countries. We complement these results with a feature importance analysis, showing that economic and financial topics are the key performance drivers in our predictions, with additional contributions from topics related to health and government. We examine cross-country spillover effects of news narrative on BEIR via Graphical Granger Causality and confirm their existence for the US and Germany, while five other countries considered in our study are only influenced by local narrative.

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“…Shiller finds that viral narratives spread by newspapers play a causal role in economic activity (Shiller, 2017). Along the same lines, Conviction Narrative Theory (CNT) demonstrates that changes in narrative are a precursor to changes in economic growth (Tuckett et al, 2014). A recent study on CNT suggests that economic agents reassure themselves by building narratives supporting their expectations of the result of their actions (Nyman et al, 2018).…”

Section: Introductionmentioning

confidence: 99%

Macroeconomic forecasting with statistically validated knowledge graphs

Tilly¹,

Livan²

2021

Preprint

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This study leverages narrative from global newspapers to construct theme-based knowledge graphs about world events, demonstrating that features extracted from such graphs improve forecasts of industrial production in three large economies compared to a number of benchmarks. Our analysis relies on a filtering methodology that extracts "backbones" of statistically significant edges from large graph data sets. We find that changes in the eigenvector centrality of nodes in such backbones capture shifts in relative importance between different themes significantly better than graph similarity measures. We supplement our results with an interpretability analysis, showing that the theme categories "disease" and "economic" have the strongest predictive power during the time period that we consider. Our work serves as a blueprint for the construction of parsimonious -yet informative -theme-based knowledge graphs to monitor in real time the evolution of relevant phenomena in socio-economic systems.

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Bringing Social-Psychological Variables into Economic Modelling: Uncertainty, Animal Spirits and the Recovery from the Great Recession

Cited by 5 publications

References 37 publications

Macroeconomic forecasting through news, emotions and narrative

Macroeconomic forecasting through news, emotions and narrative

Predicting market inflation expectations with news topics and sentiment

Macroeconomic forecasting with statistically validated knowledge graphs

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