testing investment forecast efficiency with forecasting narratives

I analyze the narratives that accompany business cycle forecasting reports of three German institutes using topic models. To this end, I gather multiple similar topics into different economic subject categories, allowing me to map shifting prioritizations within and between these subjects. Subsequently, I examine whether forecasting narratives contain additional information not captured by traditional indicators and include them in a random forest-based investment-forecast efficiency analysis. I find multiple correlations between narratives and forecast errors and conclude that forecasters inefficiently incorporate qualitative information in these cases. I raise the idea that further investigations with more precise identification of forecasting narratives could improve qualitative information processing or lead to scientific guidelines for forecast adjustments.

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Suggested Citation

Foltas, Alexander (2022): Testing Investment Forecast Efficiency with Forecasting Narratives. Version: 1. Journal of Economics and Statistics. Dataset. http://dx.doi.org/10.15456/jbnst.2022091.173449

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