RDP 2023-06: Firms' Price-setting Behaviour: Insights from Earnings Calls Appendix A: Constructing the Dictionary-based Indices

Callan Windsor and Max Zang

September 2023

We construct word lists for 10 subindices, shown below in Figure A1. The subindices were selected with reference to those used by the Australian Bureau of Statistics Input-Output Product Classification.

Figure A1: Input Cost Sentiment Subindices
From earnings calls, dictionary based
Figure A1: Input Cost Sentiment Subindices

Note: Series are standardised to measure the number of standard deviations each series is from its mean value.

Sources: Authors' calculations; RBA; Reuters.

The list of keywords and qualifiers for the indices was then expanded by training a word embedding model (Word2Vec) on the earnings call corpus and adding relevant words that appeared to be missing. Overall, 70 words were used across the 10 subindices. Each word is also associated with a list of positive and negative qualifiers. To contribute to the index a keyword must appear near its qualifier (see Equation (1)). For example, the list of keywords and qualifiers for the ‘materials cost’ subindex is provided in Table A1. The same process was also used to construct the demand and final price indices.

Table A1: Dictionary Construction
An example for ‘materials costs’
Keyword Negative qualifiers Positive qualifiers
equipment cost reduce, reduction, reducing, lessening, decrease, decreasing, decreased, diminishing, diminished, lower, easing, lowering, decline, declining pressure, higher, inflation, flow through, pass through, escalation, blowout, increasing, increased, spike, rising, increase
vehicle expense reduce, reduction, reducing, lessening, decrease, decreasing, decreased, diminishing, diminished, lower, easing, lowering, decline, declining pressure, higher, inflation, flow through, pass through, escalation, blowout, increasing, increased, spike, rising, increase
wood reduce, reduction, reducing, lessening, decrease, decreasing, decreased, diminishing, diminished, lower, easing, lowering, decline, declining pressure, higher, inflation, flow through, pass through, escalation, blowout, increasing, increased, spike, rising, increase
timber reduce, reduction, reducing, lessening, decrease, decreasing, decreased, diminishing, diminished, lower, easing, lowering, decline, declining pressure, higher, inflation, flow through, pass through, escalation, blowout, increasing, increased, spike, rising, increase
lumber reduce, reduction, reducing, lessening, decrease, decreasing, decreased, diminishing, diminished, lower, easing, lowering, decline, declining pressure, higher, inflation, flow through, pass through, escalation, blowout, increasing, increased, spike, rising, increase
laminate cost reduce, reduction, reducing, lessening, decrease, decreasing, decreased, diminishing, diminished, lower, easing, lowering, decline, declining pressure, higher, inflation, flow through, pass through, escalation, blowout, increasing, increased, spike, rising, increase
steel cost reduce, reduction, reducing, lessening, decrease, decreasing, decreased, diminishing, diminished, lower, easing, lowering, decline, declining pressure, higher, inflation, flow through, pass through, escalation, blowout, increasing, increased, spike, rising, increase
pipe reduce, reduction, reducing, lessening, decrease, decreasing, decreased, diminishing, diminished, lower, easing, lowering, decline, declining pressure, higher, inflation, flow through, pass through, escalation, blowout, increasing, increased, spike, rising, increase
piping reduce, reduction, reducing, lessening, decrease, decreasing, decreased, diminishing, diminished, lower, easing, lowering, decline, declining pressure, higher, inflation, flow through, pass through, escalation, blowout, increasing, increased, spike, rising, increase
aluminium reduce, reduction, reducing, lessening, decrease, decreasing, decreased, diminishing, diminished, lower, easing, lowering, decline, declining pressure, higher, inflation, flow through, pass through, escalation, blowout, increasing, increased, spike, rising, increase
metal reduce, reduction, reducing, lessening, decrease, decreasing, decreased, diminishing, diminished, lower, easing, lowering, decline, declining pressure, higher, inflation, flow through, pass through, escalation, blowout, increasing, increased, spike, rising, increase