Vector-based language model can improve forecasts – BIS paper

“Word embeddings” can be used to make better inflation predictions, authors find

The Bank for International Settlements, Basel
The Bank for International Settlements, Basel
Photo: Ulrich Roth

A form of text analysis that turns language into vectors can be used to make inflation forecasts more accurate, research published by the Bank for International Settlements finds.

The study adds to a growing body of work that uses artificial intelligence tools to assess central bank communications. Instead of using the popular approach of sentiment analysis, the authors of the working paper use “word embeddings”, which translate words into numerical vectors.

The vectors are designed to capture the

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