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Chinese economic behavior in times of covid-19. A new leading economic indicator based on Google trends

Author

Listed:
  • Monge, Manuel
  • Claudio-Quiroga, Gloria
  • Poza, Carlos

Abstract

Since December 2019 we have been living with a virus called SARS-CoV-2 which has led to health policies being given prevalence over economic ones, causing serious consequences with regard to China's economic growth. For this purpose, we have built a Real Time Leading Economic Indicator based on Google Trends that improves the performance of Composite Leading Indicators (CLIs) to anticipate GDP trends and turning points for the Chinese economy. First, we assess the effectiveness of this new leading indicator relative to China's GDP by analyzing its statistical properties. We use fractional integration techniques to show the high degree of persistence of the new Real Time Leading Economic Indicator (RT-LEI) for China. Second, we observe the same relationship between GDP and RT-LEI in the long term using a Fractional Cointegration VAR (FCVAR) model. Third, we use a multivariate Continuous Wavelet Transform analysis to show which leading indicator best fits GDP and to identify when a structural change occurs. Finally, we forecast, using Artificial Neural Networks and a KNN model based on Machine Learning, our RT-LEI predicting the conclusion of a bearish scenario, after which the recovery begins in mid-2022.

Suggested Citation

  • Monge, Manuel & Claudio-Quiroga, Gloria & Poza, Carlos, 2024. "Chinese economic behavior in times of covid-19. A new leading economic indicator based on Google trends," International Economics, Elsevier, vol. 177(C).
    • Handle: RePEc:eee:inteco:v:177:y:2024:i:c:s2110701723000744
    DOI: 10.1016/j.inteco.2023.100462
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    More about this item

    Keywords

    Leading economic indicators; Business cycle; Google trends; Fractional cointegration; Machine learning;
    All these keywords.

    JEL classification:

    • C00 - Mathematical and Quantitative Methods - - General - - - General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications

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