Do Google Searches Help in Nowcasting Private Consumption? A Real-Time Evidence for the US

KOF Swiss Economic Institute Working Paper No. 256

DIW Berlin Discussion Paper No. 997

28 Pages Posted: 25 May 2010 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

Date Written: April 1, 2010

Abstract

In this paper, we investigate whether the Google search activity can help in nowcasting the year-on-year growth rates of monthly US private consumption using a real-time data set. The Google-based forecasts are compared to those based on a benchmark AR(1) model and the models including the consumer surveys and financial indicators. According to the Diebold-Mariano test of equal predictive ability, the null hypothesis can be rejected suggesting that Google-based forecasts are significantly more accurate than those of the benchmark model. At the same time, the corresponding null hypothesis cannot be rejected for models with consumer surveys and financial variables. Moreover, when we apply the test of superior predictive ability (Hansen, 2005) that controls for possible data-snooping biases, we are able to reject the null hypothesis that the benchmark model is not inferior to any alternative model forecasts. Furthermore, the results of the model confidence set (MCS) procedure (Hansen et al., 2005) suggest that the autoregressive benchmark is not selected into a set of the best forecasting models. Apart from several Google-based models, the MCS contains also some models including survey-based indicators and financial variables. We conclude that Google searches do help improving the nowcasts of the private consumption in US.

Keywords: Google Indicators, Real-Time Nowcasting, Principal Components, US Private Consumption

JEL Classification: C22, C53, C82

Suggested Citation

Kholodilin, Konstantin A. and Podstawski, Maximilian and Siliverstovs, Boriss, Do Google Searches Help in Nowcasting Private Consumption? A Real-Time Evidence for the US (April 1, 2010). KOF Swiss Economic Institute Working Paper No. 256, DIW Berlin Discussion Paper No. 997, Available at SSRN: https://ssrn.com/abstract=1615453 or http://dx.doi.org/10.2139/ssrn.1615453

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

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