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Reading between the Lines: Using Media to Improve German Inflation Forecasts

Discussion Papers 1665, 19 S.

Benjamin Beckers, Konstantin A. Kholodilin, Dirk Ulbricht


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In this paper, we examine the predictive ability of automatic and expert-rated media sentiment indicators for German inflation. We find that sentiment indicators are competitive in providing inflation forecasts against a large set of common macroeconomic and financial predictors. Sophisticated linguistic sentiment algorithms and business cycle news rated by experts perform best and are superior to simple word-count indicators and autoregressive forecasts.

Konstantin A. Kholodilin

Research Associate in the Macroeconomics Department

JEL-Classification: C53;E31;E37
Keywords: Inflation prediction, media sentiment indicators, news reports, real-time forecasting
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