Online search query data can improve the quality of economic forecasting, according to research in four selected countries.
Information about special events can improve economic forecasts substantially. However, due to the lack of timely quantitative data about these events, it has been difficult for professional forecasters to utilise such information in their forecasts.
New research investigates whether Internet search data can improve economic predictions in times of special events. In recent years, the Internet has emerged as a promising new source of data for many fields of economic activity.
For example, people use the Internet to look for information on goods and services, to compare prices and to buy or sell products. For each of these activities they use specialized platforms. The providers of these platforms collect, store and – at least in some cases – offer data related to these activities without delay. This data can thus fruitfully be employed for economic forecasting.
An analysis of “cash for clunkers” programs in four selected countries exemplifies that including search query data into statistical forecasting models improves the forecasting performance in almost all cases.
However, the challenge to identify irregular events and to find the appropriate time series from Google Insights for search remains.