Economics at your fingertips  

Interpreting Big Data in the Macro Economy: A Bayesian Mixed Frequency Estimator

David Kohns () and Arnab Bhattacharjee ()

No 10, CEERP Working Paper Series from Centre for Energy Economics Research and Policy, Heriot-Watt University

Abstract: More and more are Big Data sources, such as Google Trends, being used to augment nowcast models. An often neglected issue within the previous literature, which is especially pertinent to policy environments, is the interpretability of the Big Data source included in the model. We provide a Bayesian modeling framework which is able to handle all usual econometric issues involved in combining Big Data with traditional macroeconomic time series such as mixed frequency and ragged edges, while remaining computationally simple and allowing for a high degree of interpretability. In our model, we explicitly account for the possibility that the Big Data and macroeconomic data set included have different degreesof sparsity. We test our methodology by investigating whether Google trends in real time increase nowcast fit of US real GDP growth compared to traditional macroeconomic time series. We find that search terms improve performance of both point forecast accuracy as well as forecast density calibration not only before official information is released but alsolater into GDP reference quarters. Our transparent methodology shows that the increased fit stems from search terms acting as early warning signals to large turning points in GDP.

Keywords: Big Data; Machine Learning; Interpretability; Illusion of Sparsity; Density Nowcast; Google Search Terms (search for similar items in EconPapers)
JEL-codes: C31 C53 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2019-10
New Economics Papers: this item is included in nep-big, nep-cmp, nep-ecm, nep-for and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed

Downloads: (external link) First version, 2019 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Access Statistics for this paper

More papers in CEERP Working Paper Series from Centre for Energy Economics Research and Policy, Heriot-Watt University
Bibliographic data for series maintained by Antonio Carvalho ( this e-mail address is bad, please contact ).

Page updated 2021-11-22
Handle: RePEc:hwc:wpaper:010