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

Michael Donadelli

Applied Economics Letters, 2015, vol. 22, issue 10, 801-807

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.

Date: 2015
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DOI: 10.1080/13504851.2014.978070

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