Enhancing Inflation Nowcasting with LLM: Sentiment Analysis on News

October 26, 2024 · Entered Twilight · 🏛 arXiv.org

Repo contents: .DS_Store, .gitignore, README.md, data, data_process.ipynb, images, inflabert.ipynb, news.ipynb, news_eda.ipynb, nowcaster.ipynb, plots.ipynb, report.pdf, requirements.txt, utils

Authors Marc-Antoine Allard, Paul Teiletche, Adam Zinebi arXiv ID 2410.20198 Category cs.CE: Computational Engineering Cross-listed cs.CL Citations 1 Venue arXiv.org Repository https://github.com/paultltc/InflaBERT ⭐ 3 Last Checked 2 months ago

Abstract

This study explores the integration of large language models (LLMs) into classic inflation nowcasting frameworks, particularly in light of high inflation volatility periods such as the COVID-19 pandemic. We propose InflaBERT, a BERT-based LLM fine-tuned to predict inflation-related sentiment in news. We use this model to produce NEWS, an index capturing the monthly sentiment of the news regarding inflation. Incorporating our expectation index into the Cleveland Fed's model, which is only based on macroeconomic autoregressive processes, shows a marginal improvement in nowcast accuracy during the pandemic. This highlights the potential of combining sentiment analysis with traditional economic indicators, suggesting further research to refine these methodologies for better real-time inflation monitoring. The source code is available at https://github.com/paultltc/InflaBERT.