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

See all articles by Maria Elena Bontempi

Maria Elena Bontempi

University of Bologna - Department of Economics

Roberto Golinelli

University of Bologna - Department of Economics

Matteo Squadrani

University of Bologna

Date Written: March 9, 2016

Abstract

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

Suggested Citation

Bontempi, Maria Elena and Golinelli, Roberto and Squadrani, Matteo, A New Index of Uncertainty Based on Internet Searches: A Friend or Foe of Other Indicators? (March 9, 2016). Quaderni - Working Paper DSE N° 1062. Available at SSRN: https://ssrn.com/abstract=2746346 or http://dx.doi.org/10.2139/ssrn.2746346

Maria Elena Bontempi (Contact Author)

University of Bologna - Department of Economics ( email )

Strada Maggiore, 45
40125 Bologna, 40125
Italy
+39 051 2092600 (Phone)
+39 051 2092664 (Fax)

Roberto Golinelli

University of Bologna - Department of Economics ( email )

Strada Maggiore 45
Bologna, 40125
Italy
+39 051 209 2638 (Phone)
+39 051 209 2664 (Fax)

Matteo Squadrani

University of Bologna ( email )

Piazza Scaravilli 2
Bologna, 40100
Italy

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