A New Index of Uncertainty Based on Internet Searches: A Friend or Foe of Other Indicators?
Quaderni - Working Paper DSE N° 1062
63 Pages Posted: 12 Mar 2016
Date Written: March 9, 2016
The preliminary evidence in the literature suggests that changes in uncertainty have a role in shaping the U.S. economic cycle. But what is effectively measured by the different available indicators of uncertainty still remains an "uncertain" issue. This paper has two aims: (i) to introduce a new uncertainty indicator (GT) based on Internet searches; and (ii) to compare the main features and the macroeconomic effects of alternative measures of uncertainty, including our own. Results suggest that GT shocks embody timely information about people's perception of uncertainty and, in some cases, earlier than other indexes. Furthermore, the effect of uncertainty shocks on output is more influenced by parameter breaks due to in-sample events than by model specification. The consequence is that an all-comprehensive indicator able to weight different sources of uncertainty is preferable.
Keywords: Uncertainty measures, finance-based, survey-based, news-based, Internet searches, Google, comparison across indicators, macroeconomic effects of uncertainty
JEL Classification: D80, E32, E27, E37, C32
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