Do Media Data Help to Predict German Industrial Production?

In an uncertain world, decisions by market participants are based on expectations. Therefore, sentiment indicators reflecting expectations have a proven track record at predicting economic variables. However, survey respondents largely perceive the world through media reports. Here, we want to make use of that. We employ a rich dataset provided by Media Tenor International, based on sentiment analysis of opinion‐leading media in Germany from 2001 to 2014, transformed into several monthly indices. German industrial production is predicted in a real‐time out‐of‐sample forecasting experiment and media indices are compared to a huge set of alternative indicators. Media data turn out to be valuable for 10‐ to 12‐month horizon forecasts, which is in line with the lag between monetary policy announcements and their effect on industrial production. This holds in the period during and after the Great Recession when many models fail.