Over the years, Google has branched out to serve a number of different functions. What began as a simple search company has expanded into a mobile company, a cloud computing player, and potentially an engineer of self-driving cars. Could it also become a forecasting tool for central bankers?
The central bank stands at the forefront of the world’s hunt for new economic indicators, analyzing keyword counts for everything from aerobics classes to refrigerators -- reported by Google almost as soon as the queries take place -- to gauge consumer demand before official statistics are released. The Federal Reserve and the central banks of England, Italy, Spainand Chile have followed up with their own studies to see if search volumes track trends in the economies they oversee.
Did more people browsing for cars predict an increase in auto sales? Was a jump in research on unemployment benefits a hint that people were losing jobs?
Does this bode well for Google’s future? Is tracking Google searches a legitimate tool for central bankers to gauge consumer demand?
I’ll admit that at first I was skeptical, but tracking Google search queries—119 billion of which were made this June—could actually be a smart move:
At stake is the ability of the guardians to deploy nimbler policy responses. Greater foresight could make the difference between a slowdown and a recession, a recovery and an inflation-stoking boom, according to Erik Brynjolfsson, a member of theFederal Reserve Bank of Boston’s Academic Advisory Council.
Moreover, central bankers could determine policy more effectively if they no longer needed to rely on delayed economic information:
Google makes its data available one to three days after users perform searches. The U.S. Commerce Department typically publishes its monthly report on retail sales two weeks into the following month.
Still, there are some drawbacks to this strategy:
To be sure, the research connecting economic forecasting with Google’s search counts -- totaling 119 billion worldwide in June, according to Internet research company ComScore Inc. (SCOR) -- is still in its early stages. Even the biggest proponents of the tool cite causes for reservation. The figures go back only to 2004, constraining comparisons with statistics that have a longer track record. And by limiting its sample to Internet users, the search volumes may not reflect the purchases of those who spend less time online: the elderly and the less affluent.
What are your thoughts on this? Should the Fed consider tracking Google searches to determine economic forecasts?
Source:
Bloomberg
Fucking ban this kid for spamming
Ha, says the kid with 0 Silver Bananas and 16 Monkey Shit. Oops, make that 17.
LIBOR stuff will be a joke when companies make fake searches to influence central banks.
In seeking a relationship between search volume trends and economic activity I think there needs to be a strong correlation between the two and even then care has to be taken in the correctness of the correlation. Analyzing search terms can only reveal an individual's interest in a product or service unless it’s connected with an actual sale and using such search terms may bias the results as an interest can be without the means to act. The fact that users are searching specific terms that have economic outcomes could imply spurious conclusions as we wouldn’t know which ones are driven by those with an “ability to consume” and those who are simply “entertaining their desires.” For example…
However, it’s an interesting idea but I don’t think it’s robust enough according to my limited knowledge of how GOOG operates. Perhaps gauging consumer demand would be more useful than starting with aggregate demand until its proven effective and insightful. Instead, I think GOOG should consider a pilot program, in the microeconomic market first before trying aggregating data on a macro-level that it doesn’t yet have experience in but either way I’d be much interested in the details of what comes of this.
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