Google It Up! A Google Trends-Based Uncertainty Index for the United States and Australia

Abstract

We develop uncertainty indices for the United States and Australia based on freely accessible, real time Google Trends data. Our Google Trends Uncertainty (GTU) indices are found to be positively correlated to a variety of alternative proxies for uncertainty available for these two countries. VAR investigations document an economically and statistically signi…cant contribution to unemployment dynamics by GTU shocks in the United States. In contrast, the contribution of GTU shocks to unemployment dynamics in Australia is found to be much milder and substantially lower than that of monetary policy shocks.

Immigration, uncertainty and macroeconomic dynamics

“…Moreover, our findings have pointed out that the observed macroeconomic outcomes depend on the way in which immigration‐related uncertainty is measured. As opposed to Donadelli (), Bontempi et al () and Castelnuovo and Tran () who show that news‐based EPU shocks and Google search‐based macroeconomic policy uncertainty shocks produce similar impulse responses of main macroeconomic aggregates, our analysis suggests that the macroeconomic implications of a shock to the MPUI and MFI (i.e. news‐based immigration‐related sentiment shock) of Baker et al () are different from those generated by a shock to our newly developed GTMU index (i.e., Google search‐based immigration‐related uncertainty shock).…”

“…Recent studies show that uncertainty about the future can be captured by the frequency of Internet searches. The idea is that search frequency on Internet intensifies when the level of uncertainty for a specific topic is high (Castelnuovo & Tran, ; Donadelli & Gerotto, ). We thus construct an immigration‐related uncertainty index that relies on Google searches for the term “immigration”.…”

“…Following recent studies focusing on the impact of economic policy uncertainty on macroeconomic quantities and prices (Bloom, ; Castelnuovo & Tran, ; Colombo, ; Donadelli, ), in our benchmark VAR analysis we also assume immigration‐related uncertainty (or fear) to affect contemporaneously industrial production, unemployment rate and consumer price index (i.e., immigration‐related uncertainty/fear is ordered first in a Cholesky decomposition). Here, we investigate whether results obtained by ordering news‐based immigration uncertainty/fear shocks first would be altered if we order them last (i.e., , ).…”

“…The MPUI and the MFI are available at quarterly frequency (from early 1990s) for the following countries: US, UK, Germany and France. Following the very recent literature aimed at capturing users' uncertainty by means of Internet search volume for specific topics (Bontempi, Golinelli, & Squadrani, ; Castelnuovo & Tran, ; Donadelli, ; Dzielinski, ), we then build a novel indicator of immigration‐related uncertainty based on the frequency of Google searches for the term “immigration”. Google trends on a specific topic and for a specific country can be retrieved at a monthly frequency from 2004.…”

Economic Policy Uncertainty Spillovers in Booms and Busts

“…First, a growing strand of the literature has studied the measurement and the macroeconomic e¤ects of economic policy uncertainty. Proxies for uncertainty have been constructed via measures of forecast disagreement (Bachmann, Elstner, and Sims (2013)), by relating the location of the real GDP forecast errors to the sample distribution of the forecast errors of the same variable Sekhposyan (2015, 2016)), by modeling the common component of the volatility of the forecast errors of several macroeconomic and …nancial indicators (Jurado, Ludvigson, and Ng (2015), Ludvigson, Ma, and Ng (2017), and Carriero, Clark, and Marcellino (2018)), by exploiting Bloomberg forecasts to capture agents'uncertainty surrounding current realizations of real economic activity (Scotti (2016)), focusing on interest rate uncertainty as done by Creal and Wu (2017) and Istre… and Mouabbi (2017), or working with Google Trends data as Castelnuovo and Tran (2017). The focus of this paper is on economic policy uncertainty.…”