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Google search-based metrics, policy-related uncertainty and macroeconomic conditions

Listed author(s):
  • Michael Donadelli

We propose three novel measures of policy-related uncertainty based on the volume of Google searches for ( i ) 'US stock market'; ( ii ) 'US politics'; ( iii ) 'US Fed'. In a VAR context, we find that a Google-search-based uncertainty shock has sizable adverse effects on US macroeconomic conditions. In particular, it produces ( i ) a drop in industrial production, consumer sentiment, equity prices, long-term rates and consumer credit; ( ii ) a rise in the unemployment rate. These effects are nearly identical to those generated by a shock to a standard policy-related uncertainty indicator. Our empirical findings suggest that a rise in the volume of internet searches for economic policy-related topics is a symptom of increasing uncertainty. It turns out that the proposed Google-search-based metrics meet standard policy-related uncertainty indicators.

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File URL: http://hdl.handle.net/10.1080/13504851.2014.978070
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Article provided by Taylor & Francis Journals in its journal Applied Economics Letters.

Volume (Year): 22 (2015)
Issue (Month): 10 (July)
Pages: 801-807

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Handle: RePEc:taf:apeclt:v:22:y:2015:i:10:p:801-807
DOI: 10.1080/13504851.2014.978070
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  1. Nodari, Gabriela, 2014. "Financial regulation policy uncertainty and credit spreads in the US," Journal of Macroeconomics, Elsevier, vol. 41(C), pages 122-132.
  2. Caggiano, Giovanni & Castelnuovo, Efrem & Groshenny, Nicolas, 2014. "Uncertainty shocks and unemployment dynamics in U.S. recessions," Journal of Monetary Economics, Elsevier, vol. 67(C), pages 78-92.
  3. Lemieux, James & Peterson, Robert A., 2011. "Purchase deadline as a moderator of the effects of price uncertainty on search duration," Journal of Economic Psychology, Elsevier, vol. 32(1), pages 33-44, February.
  4. Nicholas Bloom, 2009. "The Impact of Uncertainty Shocks," Econometrica, Econometric Society, vol. 77(3), pages 623-685, May.
  5. Gauvin, L. & McLoughlin, C. & Reinhardt, D., 2013. "Policy Uncertainty Spillovers to Emerging Markets - Evidence from Capital Flows," Working papers 435, Banque de France.
  6. Colombo, Valentina, 2013. "Economic policy uncertainty in the US: Does it matter for the Euro area?," Economics Letters, Elsevier, vol. 121(1), pages 39-42.
  7. Zhi Da & Joseph Engelberg & Pengjie Gao, 2011. "In Search of Attention," Journal of Finance, American Finance Association, vol. 66(5), pages 1461-1499, October.
  8. Phillips, Peter C. B., 1998. "Impulse response and forecast error variance asymptotics in nonstationary VARs," Journal of Econometrics, Elsevier, vol. 83(1-2), pages 21-56.
  9. Sims, Christopher A & Stock, James H & Watson, Mark W, 1990. "Inference in Linear Time Series Models with Some Unit Roots," Econometrica, Econometric Society, vol. 58(1), pages 113-144, January.
  10. Dzielinski, Michal, 2012. "Measuring economic uncertainty and its impact on the stock market," Finance Research Letters, Elsevier, vol. 9(3), pages 167-175.
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