Google Searches as a Means of Improving the Nowcasts of Key Macroeconomic Variables

16 Pages Posted: 17 Nov 2009 Last revised: 27 Oct 2012

See all articles by Konstantin A. Kholodilin

Konstantin A. Kholodilin

German Institute for Economic Research (DIW Berlin)

Maximilian Podstawski

DIW Berlin

Boriss Siliverstovs

German Institute for Economic Research (DIW Berlin) - Department of International Economics

Constantin Rudolf Salomo Bürgi

George Washington University - Research Program on Forecasting

Date Written: November 1, 2009

Abstract

The Google Insights data are a collection of recorded Internet searches for a huge number of the keywords, which are available since January 2004. These searches represent a kind of revealed perceptions of Internet users, which are a (possibly not entirely representative) sample of the general public. These data can be used to improve the short-term forecasts or nowcasts of various macroeconomic variables. In this paper, we compare the nowcasts of the growth rates of the real US private consumption based on both the conventional consumer confidence indicators and the Google indicators. The latter are extracted from the Google searches using the principal component analysis. It is shown that the Google indicators are especially successful at predicting private consumption in times of economic trouble, for they are 20% more accurate than the best alternative during the 2008m1-2009m5 forecast period. In addition, Google indicators are available at weekly frequency and not subject to revisions. This makes them an excellent source of information for the macroeconomic forecasting.

Keywords: Google indicators, forecasting, principal components, US private consumption

JEL Classification: C22, C53, C82

Suggested Citation

Kholodilin, Konstantin A. and Podstawski, Maximilian and Siliverstovs, Boriss and Bürgi, Constantin Rudolf Salomo, Google Searches as a Means of Improving the Nowcasts of Key Macroeconomic Variables (November 1, 2009). DIW Berlin Discussion Paper No. 946. Available at SSRN: https://ssrn.com/abstract=1507084 or http://dx.doi.org/10.2139/ssrn.1507084

Konstantin A. Kholodilin (Contact Author)

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstraße 58
Berlin, 10117
Germany

Maximilian Podstawski

DIW Berlin ( email )

Mohrenstraße 58
Berlin, 10117
Germany

Boriss Siliverstovs

German Institute for Economic Research (DIW Berlin) - Department of International Economics ( email )

Mohrenstraße 58
Berlin, 10117
Germany

HOME PAGE: http://www.diw.de/programme/jsp/MA.jsp?language=en&uid=bsiliverstovs

Constantin Rudolf Salomo Bürgi

George Washington University - Research Program on Forecasting ( email )

1922 F Street, NW
Old Main, Suite 208
Washington, DC 20052
United States

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