Your 119 Billion Google Searches Now a Central Bank Tool06/08/2012 04:45
Margo Sugarman spent months last year searching on Google for the appliances to complete her dream kitchen, scouring the Internet for information on the latest double ovens and low-noise mixers.
Not only did those queries guide the Tel Mond, Israel, resident to the best deals for her 70,000-shekel ($17,680) renovation, they also helped the Bank of Israel, which looks to searches like Sugarman’s to assess the state of the nation’s $243 billion economy.
The research connecting economic forecasting with Google Inc.’s search counts -- totaling 127 billion worldwide in May, according to Internet research company ComScore Inc. -- is still in its early stages
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, Spain and Chile have followed up with their own studies to see if search volumes track trends in the economies they oversee.
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 the Federal Reserve Bank of Boston’s Academic Advisory Council.
“When central bankers were looking at traditional data, they were essentially looking out the rear-view mirror,” said Brynjolfsson, a professor at the Massachusetts Institute of Technology in Cambridge. The December 2009 study he co-authored on predicting U.S. home sales using search volumes was cited by three of the central bank studies.