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

“…Results from this robustness test confirm existing findings showing that EPU shocks undermine the US real economic activity (Baker et al, 2016; | 347 DONADELLI Et AL. Castelnuovo & Tran, 2017;Donadelli, 2015). In addition, our analysis points out that macroeconomic policy uncertainty and immigration-related sentiment influence economic agents' behaviour differently.…”

“…Figures 4-7 depict the impulse responses of industrial production, unemployment rate and prices (for each country) to a MPUI (Panel (a)) and MFI (Panel (b)) shock. To capture the relevance of migration-related focusing on the macroeconomic impact of news-based and Google search-based economic policy uncertainty shocks (see, among others, Colombo, 2013;Baker, Bloom, & Davis, 2016;Castelnuovo & Tran, 2017;Donadelli & Gerotto, 2019). In particular, these studies usually employ a proxy for the business cycle (industrial production), an indicator capturing labour market conditions (i.e., employment or unemployment rate) and a measure of prices (consumer price index).…”

“…We stress that the contribution of a GTMU shock to the volatility of the unemployment rate is as high as 7%, and it is much larger than that of MPUI and MFI shocks (Table 5 vs. Table 4). 10 In this respect, we follow Castelnuovo and Tran (2017). For the sake of robustness, we have also performed the analysis using the approach of Dzielinski (2011).…”

“…This additional test confirms our baseline results about the macroeconomic reactions of GTMU shocks as well as existing evidence on the adverse effects of rising EPU. Da, Engelberg, & Gao (2011) transformation In line with Donadelli (2015) and Castelnuovo and Tran (2017), we have employed raw Google search data. However, some studies argue that using raw Google trends might not be a good idea.…”

“…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 (2015), Bontempi et al (2016) and Castelnuovo and Tran (2017) who show that news-based EPU shocks and Google searchbased 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 (2015) are different from those generated by a shock to our newly developed GTMU index (i.e., Google search-based immigration-related uncertainty shock).…”