Soft information and economic activity: Evidence from the Beige Book

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. We show that the Beige Book language is a good predictor of economic turning points as it often provides an early indication of future economic activities. During economic upswings, positive tone becomes more prominent and negative tone becomes less prominent. In addition, this study is the first to document that Beige Book tone affects stock market volatility and trading volume.

► We use text analysis software to analyze the content of the Beige Book.
► Tone has predictive content for turning points in industrial production, unemployment rate and economic conditions.
► Beige Book tone also affects stock market volatility and trading volume.