RBA Develops News Sentiment Index to Track Economic Perceptions

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Australia’s central bank has put together a gauge of “news sentiment” to measure the balance of negative and positive words used in journalists’ articles on the economy in order to help track perceptions.

The index “complements other timely survey-based sentiment indicators in its ability to ‘nowcast’ the economy,” Reserve Bank of Australia economists Kim Nguyen and Gianni La Cava said in aresearch report released Wednesday.

“In fact, given its timeliness, changes in news-based sentiment precede movements in the survey-based sentiment indicators,” they said. “Changes in the news sentiment index also precede, and thus can predict, changes in some other economic indicators, such as survey-based measures of business investment, over short horizons.”

Covid-19 has seen economic officials seek the most up-to-date readings to try to keep pace with a rapidly evolving outlook. The Australian Bureau of Statistics, for example, is now releasing preliminary data on retail sales andmerchandise trade to provide a guide on how activity is tracking.

The RBA in November cut its cash rate to a record-low 0.10% and lowered its target for the three-year government bond yield to the same level. It’s trying to push down borrowing costs across the economy in order to accelerate the recovery from coronavirus lockdowns.

“Sentiment captured in news articles specifically about monetary policy is associated with changes in the cash rate,” Nguyen and La Cava wrote. “Increases in the cash rate appear to cause news sentiment to fall in the days after an unexpected change in monetary policy (and vice versa). This is consistent with monetary policy having its intended effect(s).”

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