The Reserve Bank has developed new measures of financial stress, designed to provide timely data that helps identify emerging household and business pressure.
The new indicators are based on news archives, web searches and social media activity, which the RBA says can be used as predictors of more traditional measures of financial stress, such as changes in loan arrears.
In an article in the latest Reserve Bank Bulletin, the RBA says financial stress covers a spectrum ranging in severity from general concern about the availability of money to difficulty paying for essential items, default and insolvency.
“Many traditional measures, such as non-performing loans, insolvencies, property repossessions, business administrations and court action against companies are backward looking,” it says.
“More forward-looking indicators, such as consumer surveys tend to be infrequent. There is a lack of timely data on mild-to-moderate financial stress, making it difficult to identify emerging risks.”
It is using news data drawn from the Dow Jones Factiva archive to assess the general level of concern about financial conditions. The RBA extracts all articles published in Australia that are classified as “economic news” and computes the net sentiment of the articles over time using the Loughran-McDonald dictionary (as set of keywords tagged as positive or negative).
It is using Twitter for a more direct view of what individuals, including small business owners, are concerned about. “On Twitter, it is common to see users publicly tweet about examples of financial difficulties they or their friends are struggling with,” the RBA says.
On Twitter, it captures relevant topics and sentiments and tracks them over times as a share of the total number of tweets.
And it is using Google Trends to gain insight into private concerns, as captured by the searches people make for financial information and assistance. Some of the keyword searches the RBA makes include “defer my utility bill”, “cash assistance”, “loan support” and “bankruptcy”.
The RBA says all three stress indices have risen this year, despite limited signs in official data of a pick-up in financial stress in Australian households.
“This may reflect that the new indicators capture early-stage financial stress and that the impact of the combination of higher interest rates and inflation varies significantly across households. It could also be driven by anticipation of future financial stress based overseas news and events.”
The RBA says the new metrics could fill the gap on early-stage financial stress. It will continue to refine the indices.