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Forecasting private consumption: survey‐based indicators vs. Google trends

  • Simeon Vosen
  • Torsten Schmidt

In this study we introduce a new indicator for private consumption based on search query time series provided by Google Trends. The indicator is based on factors extracted from consumption-related search categories of the Google Trends application Insights for Search. The forecasting performance of the new indicator is assessed relative to the two most common survey‐based indicators: the University of Michigan Consumer Sentiment Index and the Conference Board Consumer Confidence Index. The results show that in almost all conducted in‐sample and out‐of‐sample forecasting experiments the Google indicator outperforms the survey‐based indicators. This suggests that incorporating information from Google Trends may offer significant benefits to forecasters of private consumption. Copyright (C) 2011 John Wiley & Sons, Ltd.

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File URL: http://hdl.handle.net/10.1002/for.1213
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Article provided by John Wiley & Sons, Ltd. in its journal Journal of Forecasting.

Volume (Year): 30 (2011)
Issue (Month): 6 (September)
Pages: 565-578

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Handle: RePEc:jof:jforec:v:30:y:2011:i:6:p:565-578
Contact details of provider: Web page: http://www3.interscience.wiley.com/cgi-bin/jhome/2966

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  1. Sydney C. Ludvigson, 2004. "Consumer Confidence and Consumer Spending," Journal of Economic Perspectives, American Economic Association, vol. 18(2), pages 29-50, Spring.
  2. Croushore, Dean, 2005. "Do consumer-confidence indexes help forecast consumer spending in real time?," The North American Journal of Economics and Finance, Elsevier, vol. 16(3), pages 435-450, December.
  3. Diebold, Francis X & Mariano, Roberto S, 1995. "Comparing Predictive Accuracy," Journal of Business & Economic Statistics, American Statistical Association, vol. 13(3), pages 253-63, July.
  4. Nikos Askitas & Klaus F. Zimmermann, 2009. "Google Econometrics and Unemployment Forecasting," Discussion Papers of DIW Berlin 899, DIW Berlin, German Institute for Economic Research.
  5. Harvey, David & Leybourne, Stephen & Newbold, Paul, 1997. "Testing the equality of prediction mean squared errors," International Journal of Forecasting, Elsevier, vol. 13(2), pages 281-291, June.
  6. Carroll, Christopher D & Fuhrer, Jeffrey C & Wilcox, David W, 1994. "Does Consumer Sentiment Forecast Household Spending? If So, Why?," American Economic Review, American Economic Association, vol. 84(5), pages 1397-1408, December.
  7. James A Wilcox, 2007. "Forecasting Components of Consumption with Components of Consumer Sentiment," Business Economics, Palgrave Macmillan, vol. 42(4), pages 22-32, October.
  8. Jason Bram & Sydney Ludvigson, 1997. "Does consumer confidence forecast household expenditure?: A sentiment index horse race," Research Paper 9708, Federal Reserve Bank of New York.
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