Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/205311 
Year of Publication: 
2019
Series/Report no.: 
Tinbergen Institute Discussion Paper No. TI 2019-021/III
Publisher: 
Tinbergen Institute, Amsterdam and Rotterdam
Abstract: 
We use Google search data with the aim of predicting unemployment, CPI and consumer confidence for the US, UK, Canada, Germany and Japan. Google search queries have previously proven valuable in predicting macroeconomic variables in an in-sample context. To our knowledge, the more challenging question of whether such data have out-of-sample predictive value has not yet been satisfactorily answered. We focus on out-of-sample nowcasting, and extend the Bayesian Structural Time Series model using the Hamiltonian sampler for variable selection. We find that the search data retain their value in an out- of-sample predictive context for unemployment, but not for CPI and consumer confidence. It may be that online search behaviour is a relatively reliable gauge of an individual's personal situation (employment status), but less reliable when it comes to variables that are unknown to the individual (CPI) or too general to be linked to specific search terms (consumer confidence).
Subjects: 
Bayesian methods
forecasting practice
Kalman filter
macroeconomic forecasting
state space models
nowcasting
spike-and-slab
Hamiltonian sampler
JEL: 
C11
C53
Document Type: 
Working Paper

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