Quantifying Uncertainty: A New Era of Measurement Through Large Language Models
Type
conference paper
Date Issued
2024-10-25
Author(s)
Abstract
This paper presents an innovative method for measuring uncertainty via large language models (LLMs), which offer greater precision and contextual sensitivity than the conventional methods used to construct prominent uncertainty indices. By analysing newspaper texts with state-of-the-art LLMs, our approach captures nuances often missed by conventional methods. We develop indices for various types of uncertainty, including geopolitical risk, economic policy, monetary policy, and financial market uncertainty. Our findings show that shocks to these LLM-based indices exhibit stronger associations with macroeconomic variables, shifts in investor behaviour, and asset return variations than conventional indices, underscoring their potential for more accurately reflecting uncertainty.
Language
English
Keywords
Swiss National Bank Working Paper
quantifying uncertainty
measurement
large language models
HSG Classification
not classified
Publisher
Elsevier BV
Pages
58
Event Title
CFE-CMStatistics 2024
Event Location
London
Event Date
14.-16. Dezember 2024
Division(s)
Contact Email Address
francesco.audrino@unisg.ch
Additional Information
Swiss National Bank Working Paper No. 12/2024