India Google Uncertainty Index

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The Google Trends-based Uncertainty Index for India (India-GUI) has been developed by Bhanu Pratap and Nalin Priyaranjan at the Reserve Bank of India. Available monthly from January 2004 onwards, the proposed index measures economic policy uncertainty based on internet search data on various policy-related keywords for India.

When faced with heightened uncertainty, it is typical of economic agents to 'search' for more information. The India-GUI leverages this 'search' behaviour embodied in the form of internet searches made on the Google search engine across the world. In such a scenario, data on internet searches can potentially reflect the overall level of uncertainty in the economy before it starts to appear in news text and/or economic forecasts.

The index construction follows a three-step process beginning with the selection of keywords. In the first step, Pratap and Priyaranjan select a total of 70 keywords pertaining to fiscal, monetary and trade policy in India. These search terms are carefully selected on the basis of their mentions in central bank policy statements as well as coverage in the financial press. In the second step, the authors extract search frequency for each selected keyword using an iterative, sampling-based algorithm to construct a raw uncertainty index. Finally, the raw index is adjusted for trend and seasonality to arrive at the final index.

The India-GUI captures major domestic and global events corresponding with increased uncertainty in the Indian context. It correlates well with existing measures of uncertainty, such as the news-based economic policy uncertainty (EPU) index proposed in Baker et al. (2016) and the options-based implied volatility index i.e., the India VIX index. The India-GUI is based on publicly available data and can be easily computed and updated in real-time. Going forward, the data will be updated on a regular basis and made available in the public domain.

Users of India-GUI data should cite: Pratap B., and Priyaranjan N., (2023), "Macroeconomic Effects of Uncertainty: a Google Trends-based Analysis for India" available here. The paper provides a motivation for the index and explains the construction methodology in detail. The paper also empirically tests the index with respect to its utility in measuring the economic impact of policy uncertainty shocks and economic forecasting.