Key findings
- In this Note, we construct new high-frequency indicators which measure the sentiment of New Zealand news articles over time.
- We test the usefulness of these news sentiment indicators as a measure of early-stage financial stress in New Zealand, one of several possible applications for these indicators.
- The news sentiment indicators provide similar information to measures of consumer and business confidence. As the sentiment measures are updated more frequently than the survey-based confidence measures they can provide more timely information and more clearly identify the effect of specific events on consumer and business sentiment.
- Our results suggest the news sentiment indicators can be a useful complement to the forward-looking indicators of financial stress we monitor, and we are considering how to enhance and build these techniques into our ongoing assessment of financial stability.
Why we did this research?
An important part of identifying and monitoring emerging financial stability risks is understanding the extent of financial stress in the New Zealand economy. While we have a range of indicators which are reliable measures of acute financial stresses, many of these data are backward looking and provide limited information on the outlook for households’ and businesses’ financial condition. As a result, indicators which capture the extent of early-stage financial stress in the economy can provide a valuable early warning of emerging risks, enabling us to be more forward-looking in our risk assessment.
Analysis of text data has become increasingly common in recent years, with many possible applications for central banks, including measuring the sentiment of economic news. While research by peer central banks has found news sentiment indicators to be useful measures of emerging financial stress, there has been little exploration of news-based indicators in the New Zealand context.
This Note reflects the Reserve Bank’s commitment to leveraging new data sources to strengthen its oversight of financial stability. Providing insights into risks helps to more effectively anticipate and mitigate them, promoting a resilient financial system.
What data did we use?
We construct new high-frequency measures of news sentiment in New Zealand using economic news articles published by major news outlets since 2011. We assess the usefulness of the news sentiment indicators as measures of early-stage financial stress by comparing them against alternative forward-looking indicators, including survey-based measures of business and consumer confidence, early-stage loan arrears data, and the unemployment rate.