Online search behavior and consumer intent: implications for nowcasting
Bank of Finland Discussion Papers 10/2025.
Keywords: nowcasting, online search behavior, consumer confidence, private consumption, GDP growth
This paper examines online search activity’s ability to capture consumers’ intentions and enhance short-term forecasting of key economic outcomes. Economic decisions such as consumption and investment are typically preceded by intentions, which, while difficult to observe directly, often manifest as online information-seeking behavior. Using a large, high-frequency dataset of search activity, we nowcast U.S. consumer confidence and private consumption, finding that legal and governmental searches are associated with shifts in consumer confidence, while real estate and news-related searches add value to forecasts of private consumption. We then extend the analysis to GDP nowcasting for selected OECD economies, assessing the predictive performance of search-based indicators across different contexts. Overall, our findings highlight the value of digital attention data as behaviorally grounded signals of consumer intentions, offering a timely complement to traditional economic indicators.
Bank of Finland Discussion Papers 03/2025.
Keywords: asymmetric loss function, central bank communication, textual analysis, topic model, optimal monetary policy
We study the evolution of the European Central Bank’s (ECB) monetary policy since July 2021, following the adoption of a new strategy and amid a period of volatile inflation. Utilizing text analysis, we assess changes in the general sentiment of the ECB’s communication. Additionally, we employ topic modeling to develop an inflation focused tone index. By integrating these tone indices with real-time data from monetary policy meetings, we directly estimate the ECB’s loss function. Our findings indicate a recent shift towards a more inflation-centered communication approach by the ECB. Preliminary results also suggest that the ECB’s policy preferences have become more symmetric since July 2021.
Bank of Finland Discussion Papers 06/2024.
Keywords: asymmetric loss function, textual analysis, language models, optimal monetary policy, central bank communication
Central banks prioritise price stability, but whether they dislike high and low inflation equally remains an open question. Applying a wide range of text analysis techniques, we proxy the central bank’s loss by extracting the tone of the central bank’s qualitative communication and combine it with quantitative information in real time to estimate the loss function. We find strong and robust evidence of asymmetry in the case of the European Central Bank during 1999–2021: the slope of the loss function was roughly three times steeper when inflation exceeded the target compared to when it was below the target. This represents a significant departure from the quadratic and symmetric monetary policy loss function typically applied in macro models.
Journal of Forecasting, 44(3), 881-921.
Keywords: forecasting, household heterogeneity, inflation expectations, language model, local projection media tone
This study investigates the role of media tone on inflation expectations. Examining the relationships between news and the inflation expectations of various US demographic groupings, we find that traditional news influences older cohorts, whereas social media news align more closely with the expectations of younger and more educated groups. Interestingly, social media correspond more closely than traditional news with the expectations of professional forecasters. Our analysis shows that media influences can persist for longer than a year, highlighting the importance of historical inflation data and the gradual adaptation of new information. Additionally, we find that separate media tones for specific news topics such as “Inflation & Fed” and “Healthcare Costs” resonate differently across demographic groups. These insights highlight the nuanced role of media in shaping inflation expectations across demographic segments.
Applied Economics, 56(51), 6300-6313.
Keywords: nowcasting, business survey indexes, pmi, google trends
Changes in economic conditions can occur suddenly with drastic effects. However, economic statistics are published with significant lags, e.g. GDP, and more timely information about the economy is required. Nowcasting methods have become widely popular for providing up-to-date information about the current economic stance. This study adds a novel idea to the previous literature by nowcasting the nowcasting, i.e. the purchasing manager’s index (PMI) and the non-manufacturing survey index (NSI) of the ISM Business survey indicators with the weekly Google Trends data. We used two-dimension reduction methods: the principal component analysis (PCA) and partial least squares (PLS) to eliminate ‘the curse of dimensionality’. Pseudo-out-of-sample exercises performed with different Google Trends search categories indicated that Google Search data is able to generate useful information to nowcast the nowcasting. In particular, we contribute the existing literature that weekly Google Search data can nowcast the monthly PMI and NSI.
Report on Monetary Policy Tools, Strategy and Communication
Published as an ECB Occasional Paper (No. 372, June 2025). Read it here.
Reading between the lines : Uncovering asymmetry in the central bank loss function (with M. Haavio, P. Jalasjoki, J. Kilponen, M. Paloviita and I. Vänni)
SUERF policy brief here.
Nowcasting forecasts business cycles of the present – preliminary results are promising, even though there is variation between industries
Statistics Finland blog post.
Sähköpyörä, skeittilauta vai juoksukengät? – Mitä veikkaat tämän kesän hittituotteeksi?
Statistics Finland blog post.
Nowcasting GDP growth using Google trends
Master thesis.