Google search-based metrics, policy-related uncertainty and macroeconomic conditions

Abstract

We propose three novel measures of policy-related uncertainty based on the volume of Google searches for (i) 'US stock market'; (ii) 'US politics'; (iii) 'US Fed'. In a VAR context, we find that a Google-search-based uncertainty shock has sizable adverse effects on US macroeconomic conditions. In particular, it produces (i) a drop in industrial production, consumer sentiment, equity prices, long-term rates and consumer credit; (ii) a rise in the unemployment rate. These effects are nearly identical to those generated by a shock to a standard policy-related uncertainty indicator. Our empirical findings suggest that a rise in the volume of internet searches for economic policy-related topics is a symptom of increasing uncertainty. It turns out that the proposed Google-search-based metrics meet standard policy-related uncertainty indicators.

Stock prices and geographic proximity of information: Evidence from the Ebola outbreak

“…We contribute to the literature observing the effects of media coverage on investor sentiment, by considering the geographic proximity of the information to the financial markets. Our findings relate to Klibanoff et al (1998), Fang and Peress (2009), Engelberg and Parsons (2011), Peress (2014), and Donadelli (2015) who find that investors react more to media covered events and pay more attention to stocks and news/events that are closer in distance to them.…”

“…He finds that, on strike days, trading volume falls by 12%, the dispersion of the stock returns and returns' intraday volatility is reduced by 7% whereas the aggregate returns show no signals. Donadelli (2015) measures policy-related uncertainty based on the volume of Google searches. He finds that a Google-searched-based uncertainty shock has sizable adverse effects on the U.S. macroeconomic conditions and it negatively affects the industrial production, equity prices, consumer sentiment, and consumer credit.…”

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.…”

“…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).…”