Macroeconomics

Is the Google search term “Dollar Rate” an useful predictor for economic crisis?

Economic conditions in the United States are so unchanging that economists started to explore global conditions as potential threats to its economy. Without ruling out financial institutions altogether, economists are confident current regulation will keep turbulence away. Also, the household sector appears solid for many analysts while fiscal issues seem not to alarm anybody. Nevertheless, the reality is that current economic conditions look much as an economic boom that nobody knows where it is going to burst from. This situation makes economic fears to hide just in front of analysts. Given that the economic expansion that started with the economic recovery from the Great Recession is about to reach six years now, one useful way to try to anticipate ambiguous economic situations could be by looking at Google Trends insights. Mainly, Google searches for certain terms such as “Dollar rate”. However, China’s battle against Google limits the most interesting insight we could possible get from China’s economic situation as it develops.

Start factoring in potential risks:

Since economists believe in economic cycles and expansions that last for about ten years in average, the current development should start factoring in potential risks. Thus far, in regards to the American economy, there appear to be two suspicious economic sectors that might be fueling economic anxiety as current expansion continues to grow. On one hand low oil prices are generating a reallocation of resources that is allowing many sectors of the economy to grow. On the other hand, inflows of international capital migrating to the United States could be signaling countries under pressures. The latter issue is where analysts are looking for potential threats. In this article, econometricus looks at data that could hold some clues on where turbulence could be starting to grow abroad. Indeed, one of the Americans’ biggest concerns is about China’s economic performance. The question “is it safe to invest in China?” has popped up as one of the most question asked the last two years, even over concerns about Greece.

Remembering 2015 and Google query “Dollar rate”:

Let us start by remembering that 2015 exhibited panic for international spillovers of default of local economies. Greece had the world wondering who is next, while Greeks looked for currency alternatives (Graph 1). That same question has U.S. analysts looking for potential risks from the international community. Thus, using big data and Google search terms may help researchers to track concerning developments. Indeed, growing interest for exchange rate could hold a clue for analysts as Google searches unveil the geography of those interest.

So, econometricus took the Google query “Dollar rate” as a proxy for the interest in exchanging local currency random people could have. In other words, if people worry about economic condition in a given country, they will try to exchange local currency into U.S. Dollar. Such behavior could unveil early developments in big capital outflows from key trading partners. Therefore, looking at those Google searches might illuminate analysis for identifying potential global threats.

Graph 1.

Dollar rate 3

Graph 2

Dollar rate 4

Although it could be helpful to assume money tenders tend to sell local currency and exchange it for foreign dollars, it is still hard to claim that Google searches are useful predictors for economic crisis. Econometricus does not claim that by any means. However, when complemented with other data, Google searches may help picture a better analysis and, what is more relevant, Google searches could illuminate real time developments. So, let us try to see where Google could take us.

China blocked the sensitive information on Google:

Unfortunately data on Google searches will not take the analysis any where as far as the most pressing issues regards. The most concerning country nowadays, China, blocked the sensitive information on Google. Graph 2 shows how China’s data on US currency searches has been blocked for retrieval since May 2014, which limits this analysis. Nevertheless, Google still offers others country data such as Brazil, which has also been closely watched by analysts. Brazil shows an upward trend in interest for “Dollar rate” term (Graph 2). Instead, Taiwan shows a steady trend (Graph 2). Mexico and Canada, the two biggest trading partners after China, appear to have a growing interest in US dollars (Graph 3).

Graph 3

Dollar rate 2

Graph 4

Dollar rate

Finally South Korea, Germany, and the United Kingdom. Among these three nations, only South Korea shows significant increases in the search term “Dollar rate”. Perhaps the UK may exhibit a bit of interest recently. However, it is not clear right now to what extent it could relate to economic troubling factors. We all wish we can count on China’s data so that the analysis could be expanded properly. Sadly, that is not the case as of March 2016.

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