[The Beige Book (BB) is a written description of U.S. economic conditions, produced by the Federal Reserve system. It is released eight times a year, roughly two weeks before the FOMC meeting.]
Basically BFZ include BB in an otherwise-standard FRB Philadelphia ADS Index. Here's the abstract:
We apply customized text analytics to the written description contained in the BB to obtain a quantitative measure of current economic conditions. This quantitative BB measure is then included into a dynamic factor index model that also contains other commonly used quantitative economic data. We find that at the time the BB is released, the BB has information about current economic activity not contained in other quantitative data. This is particularly the case during recessionary periods. However, by three weeks after its release date,"old" BB contain little additional information about economic activity not already contained in other quantitative data.
The paper is interesting for several reasons.
First, from a technical viewpoint, BFZ take mixed-frequency data to the max, because Beige Book releases are unequally spaced. Their modified ADS has quarterly, monthly, weekly, and now unequally-spaced, variables. But the Kalman filter handles it all, seamlessly.
Second, including Beige Book -- basically "the view of the Federal Reserve System" -- is a novel and potentially large expansion of the nowcast information set.
Third, BFZ approach the evaluation problem in a very clever way, not revealed in the abstract. They view the initial ADS releases (with vs. without BB included) as forecasts of final-revised ADS (without BB included). They find large gains from including BB in estimating time t activity using time t vintage data, but little gain from including BB in estimating time t-30 (days) activity using time t vintage data. That is, including BB in ADS improves real-time nowcasting, even if it evidently adds little to retrospective historical assessment.