Economic Indicator Analysis
- 1. Economic Indicator Analysis Analyzing the dynamic relationships between Fed speeches, and various economic data James Ransom Seun Aboderin Scott Babbitt
- 2. Agenda ● Project Goal and Topic ● Key Terminology ● Analysis ○ Economic Indicator Numbers ○ Fed Fund Rate ○ Greenspan, Bernanke, & Yellen ● Summary
- 3. Project Goal ● Application ○ Utilize Data Science to analyze large structured/unstructured datasets ● Goal ○ Compare Economic Climates under current and previous Fed Chairmans ■ Gather Federal Fund Rates ■ Analyze Speeches Janet YellenBen BernankeAlan Greenspan
- 4. Why is this important? ● Wall Street Traders ○ Use speeches → listen to key indicators ○ Predict the next moves ■ Fed ■ Economic Indications from speeches ● Consumers ○ The lower the interest rate, the more willing people are to borrow money to make big purchases, such as houses or cars.
- 5. Key Terminology ● Fed Fund Rate ● Inflation ● Unemployment Rate ● West Texas Intermediate ● Housing Starts
- 6. Fed Fund Rate ● Interest Rate at which depository institutions lend reserve balances to other depository institutions overnights on uncollateralized basis ○ ^ rate, ^ expensive to borrow ○ Determines all other interest rates in US economy ○ Since Housing Bubble burst → Target Rate: 0-.25% ● Federal Open Market Committee (FOMC) ○ Fed’s primary monetary policymaking body ○ Uses Open Market Conditions to set desired target of the rate
- 7. Inflation ● Rate at which, generally speaking, prices rise → Currency falls. ● Central banks attempt to limit such, and avoid deflation ○ Smooth Economy ● Fed’s Monetary Policy Goals ○ Promote stable environment: ■ Moderate long-term interest rates ■ Price Stability ■ Max. Employment
- 8. Unemployment Rate ● % of labor force unemployed, but actively seeking
- 9. West Texas Intermediate (WTI) ● Light, sweet crude oil ○ “Sweet” = .24% sulfur ○ Lower than North Sea Brent Crude
- 10. Housing Starts ● Number new residential construction projects during any months ● Critical indicator of economic strength
- 11. The Analysis 1) Gather Monthly Important indicators Since 1/2000 2) Correlation and Multiple Regression Analysis
- 12. Federal Fund Rate Analysis ● Data Set Information ○ Average: 1.82 ○ Median: 1.00 ○ Range: 0.07 - 6.54 ○ Mode: 0.09
- 13. Mining for Gold! Text mining, also referred to as text data mining, roughly equivalent to text analytics, is the process of deriving high-quality information from text. High-quality information is typically derived through the devising of patterns and trends through means such as statistical pattern learning. Text mining: Fed transcripts, statements, Beige books, and minutes - over 100 official fed documents related to economic outlook from January 2004 to September 2016
- 14. Key Findings Key findings: Overall the general fed speech was similar across the board. The words “Market” and “Rate” word the most frequently used words. “Will” and “think” were also used in high frequency
- 15. Overview ● Different Economic Situations → Different Outcomes ○ Pre and Post Housing bubble burst ○ Global economy ● Differing strategies concerning economic growth ○ Doves vs. Hawks ○ President