Should Mario Draghi Spend More Time on Twitter?

By Todd Buell

Reuters

Should European Central Bank President Mario Draghi spend more time checking out social media to help him gauge the state of the economy?

Two scholars from the Dutch national statistics agency CBS, Piet J.H. Daas and Marco J.H. Puts, argue in a recent paper that following social media might be a faster way for policymakers to gauge consumer confidence that waiting for more conventional surveys.

Consumer confidence indicators typically give an early read on how the public responds to geopolitical events or changing economic policies – such as the rate cuts and bond buying programs announced by the ECB Thursday.
With consumer spending accounting for the lion’s share of gross domestic product in advanced economies, confidence surveys are among the most closely-watched indicators and can influence stock and bond markets.

Official data show that Dutch sentiment has increased through much of the year, but fell in August.

The paper suggests that this key information can be gleaned earlier from looking at aggregate social media data.

“Consumer confidence and monthly aggregated social media sentiment display a similar development,” write the authors. “Changes in the sentiment of social media routinely preceded changes in consumer confidence. This lag is in the order of seven days.”

The authors suggest that Mr. Draghi and other policymakers should take social media more seriously.

“If changes in social media sentiment are indeed related to Dutch consumer confidence, they could be used as a readily available indicator for changes in consumer confidence and, as such, may contribute to, or even provide an early indicator of, an important official statistic,” say the scholars. This knowledge could offer “important information on the state of the economy” to policymakers, write the authors.

To conduct its study, the statisticians used both data used for official monthly consumer confidence reports and data on social media purchased from a Dutch company called Coosto, which has a collection of over 3 billion social media messages from 2009 to the present. Coosto automatically determines the sentiment of its collected messages as either positive, negative or neutral based on the types of words (in Dutch) that are used, and the use of smiley faces.

The ECB is active on twitter; it has had a twitter feed for about five years. Still, there are limits to how far the ECB will go in the social media revolution. Remarks from then Executive Board member Joerg Asmussen over two years ago remain valid: “I would not expect every member of the ECB Governing Council to open a twitter account soon or to accept you as friends on Facebook.”

Indeed, an ECB spokesman said that at present no members of the ECB’s six-person Executive Board has a twitter account.

See the original article >>