Nowcasting Growth using Google Trends Data: A Bayesian Structural Time Series Model

Arnab Bhattacharjee and David Kohns ()

No 538, National Institute of Economic and Social Research (NIESR) Discussion Papers from National Institute of Economic and Social Research

Abstract: This paper investigates the benefits of internet search data in the form of Google Trends for nowcasting real U.S. GDP growth in real time through the lens of mixed frequency Bayesian Structural Time Series (BSTS) models. We augment and enhance both model and methodology to make these better amenable to nowcasting with large number of potential covariates. Specifically, we allow shrinking state variances towards zero to avoid overfitting, extend the SSVS (spike and slab variable selection) prior to the more flexible normal-inverse-gamma prior which stays agnostic about the underlying model size, as well as adapt the horseshoe prior to the BSTS. The application to nowcasting GDP growth as well as a simulation study demonstrate that the horseshoe prior BSTS improves markedly upon the SSVS and the original BSTS model with the largest gains in dense data-generating-processes. Our application also shows that a large dimensional set of search terms is able to improve nowcasts early in a specific quarter before other macroeconomic data become available. Search terms with high inclusion probability have good economic interpretation, reflecting leading signals of economic anxiety and wealth effects.

Keywords: global-local priors; Google trends; non-centred state space; shrinkage (search for similar items in EconPapers)
JEL-codes: C11 C22 C55 E37 E66 (search for similar items in EconPapers)
Date: 2022-05
New Economics Papers: this item is included in nep-big, nep-ecm, nep-for and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Journal Article: Nowcasting growth using Google Trends data: A Bayesian Structural Time Series model (2023)
Working Paper: Nowcasting Growth using Google Trends Data: A Bayesian Structural Time Series Model (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:nsr:niesrd:538

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