Abstract
This study employs text-analysis software to analyze the contents of the Federal Reserve Beige Book summary of national economic and business conditions, with a particular focus on the predictive content of the text. The empirical results suggest that the Beige Book’s tone changes in response to upswings in industrial production, unemployment, and overall economic conditions. The results further indicate that increases in negative Beige Book tone and decreases in positive Beige Book tone predict recessions one period in advance of their occurrence. Finally, this study shows that financial markets respond to Beige Book tone.
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