The Bank of Korea has developed a new News Sentiment Index (NSI) that utilizes artificial intelligence (AI) language models to more accurately capture the sentiment embedded in economic news. The new index, known as the New News Sentiment Index (New NSI), is expected to serve as a leading indicator for economic trends, as it moves ahead of official sentiment indicators like the Consumer Sentiment Index (CCSI) and influences consumption and investment.
On September 1, the Bank announced the development of a new system for calculating the news sentiment index using language models, which will be published starting this month. The New NSI will be included weekly in the Bank's Economic Statistics System (ECOS) without a separate press release.
The New NSI aims to address the limitations of the existing NSI, which has been published as experimental statistics since February 2022. The Bank explained that advancements in natural language processing technology now allow the latest language models to analyze not just specific words or phrases but the overall context and meaning of articles.
A key feature of the new index is its focus on selecting news that is highly relevant to actual domestic economic activities. The Bank collects economic news, preprocesses the text, and assesses whether it contains economic information, classifying the timing of this information as current or future. Sentences are then sampled and classified as positive, negative, or neutral to calculate the index.
In particular, a pre-trained language model specialized in Korean has been fine-tuned to assess relevance to the domestic economy, classify timing, and conduct sentiment analysis. The sample size for sentiment analysis has been increased from 10,000 to 20,000 sentences. Unlike the previous calculation method, which only reflected positive and negative sentences, the new approach includes neutral sentences, reducing the potential for index distortion.
The New NSI is analyzed to capture economic sentiment similar to the existing NSI while enhancing its leading characteristics relative to official sentiment indicators. The New NSI shows the highest correlation with the Consumer Sentiment Index and Economic Sentiment Index when it leads by one month, and with the Business Sentiment Index when it leads by two months, indicating a stronger leading characteristic compared to the existing NSI.
News sentiment has been found to influence actual consumption and investment. When news sentiment improves, consumption, particularly of semi-durable goods, tends to increase rapidly, although this effect dissipates relatively quickly. In contrast, the impact of improved news sentiment on investment takes longer to manifest, with effects lasting around seven to eight months.
The Bank of Korea assesses that the New NSI is highly useful as an informational variable for economic judgment. It contains more information for economic assessment than both the existing NSI and the Consumer Sentiment Index, particularly including additional economic information not captured by physical indicators. This suggests it could be valuable for monitoring economic conditions before physical indicators are released.
Choi Byeong-jae, head of the Bank's Statistical Research Team, noted last month that the New NSI showed a slight increase compared to July, attributing this to ongoing positive news regarding exports and the stabilization of previously volatile financial markets. He added that the stock market has stabilized upward compared to July, and the exchange rate has also shown downward stabilization, contributing to the observed increase.
* This article has been translated by AI.
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