Measuring Real-time Economic Condition with Economic Narratives

In this paper we propose an approach to measure real-time economic conditions using economic news narratives. We construct a News-based Daily Economic Condition Index (NDEI) relying on interpretable news topics estimated from the full text content of 800,000 Wall Street Journal articles. The resulting indicator captures the business cycle and the movement of economic output measures well. The empirical applications show that the resulting indicator captures the real-time economic fluctuations and contributes to predicting market volatility and interest rate, which can significantly benefits policy making and investment decisions. Our results highlight the informativeness and timeliness of economic news for describing the state of the economy