Title: Exploring the predictive power of news and neural machine learning models for economic forecasting
Citation: LECTURE NOTES IN COMPUTER SCIENCE vol. 12591 p. 135-149
Publisher: Springer Verlag
Publication Year: 2021
JRC N°: JRC121016
ISSN: 1611-3349 (online),0302-9743 (print)
URI: https://link.springer.com/chapter/10.1007%2F978-3-030-66981-2_11
DOI: 10.1007/978-3-030-66981-2_11
Type: Articles in periodicals and books
Abstract: Forecasting economic and financial variables is a challenging task for several reasons, such as the low signal-to-noise ratio, regime changes, and the effect of volatility among others. A recent trend is to extract information from news as an additional source to forecast economic activity and financial variables. The goal is to evaluate if news can improve forecasts from standard methods that usually are not well-specified and have poor out-of-sample performance. In a currently on-going project, our goal is to combine a richer information set that includes news with a state-of-the-art machine learning model. In particular, we leverage on two recent advances in Data Science, specifically on Word Embedding and Deep Learning models, which have recently attracted extensive attention in many scientific fields.We believe that by combining the two methodologies, effective solutions can be built to improve the prediction accuracy for economic and financial time series. In this preliminary contribution, we provide an overview of the methodology under development and some initial empirical findings. The forecasting model is based on DeepAR, an auto-regressive probabilistic Recurrent Neural Network model, that is combined with GloVe Word Embeddings extracted from economic news. The target variable is the spread between the US 10-Year Treasury Constant Maturity and the 3-Month Treasury Constant Maturity (T10Y3M). The DeepAR model is trained on a large number of related GloVe Word Embedding time series, and employed to produce point and density forecasts.
JRC Directorate:Joint Research Centre Corporate Activities

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