Quantifying priorities in business cycle reports: Analysis of recurring textual patterns around peaks and troughs

Alexander Foltas

No 5/2025, HWWI Working Paper Series from Hamburg Institute of International Economics (HWWI)

Abstract: This paper proposes a novel method to uncover shifting thematic priorities in textual business cycle reports and links them to macroeconomic fluctuations. To this end, I leverage qualitative business cycle forecasts published by leading German economic research institutes from 1970-2017 to estimate the proportions of latent topics. These topics are then aggregated into broader macroeconomic subjects using a supervised approach. By extracting the cyclical components of these subjects' proportions, I derive dynamic measures of forecasters' thematic priorities. Correlating the cyclic components with key macroeconomic indicators reveals consistent patterns across economic expansions and contractions. Around economic peaks, forecasters emphasize inflation-related over recession-related topics. I thus propose that forecasters' failure to predict recessions may stem from a tendency to underestimate growth risks and overestimate inflation risks during periods of contractionary monetary policy. Around troughs, forecasters prioritize investment-related topics over general growth considerations.

Keywords: Macroeconomic forecasting; Evaluating forecasts; Recession forecasting; Topic Modeling; Natural language processing; Judgemental forecasting (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:hwwiwp:334495

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