Better understanding how uncertainty impacts the economy: Insights from internet search data on the importance of disaggregation

Kalvinder Shields and Trung Duc Tran

Macroeconomic Dynamics, 2023, vol. 27, issue 5, 1319-1344

Abstract: We study the impact of uncertainty shocks using a disaggregated model featuring US state-level unemployment, and uncertainty measured using state-level Google search data. Importantly, the model captures spillovers across states and identifies substantial differences in peak responses and time dynamics. Moreover, the importance of national factors in propagating the effect of uncertainty is also heterogeneous across states, but less relevant than state-level factors. These heterogeneous effects are related to state-specific industry compositions and fiscal positions. In addition, we highlight the usefulness of disaggregated data in models of uncertainty and economic activity for the USA, based on the superior ability of the disaggregate model to predict aggregate uncertainty and unemployment.

Date: 2023
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