4.4 Article

Forecasting building permits with Google Trends

Journal

EMPIRICAL ECONOMICS
Volume 61, Issue 6, Pages 3315-3345

Publisher

PHYSICA-VERLAG GMBH & CO
DOI: 10.1007/s00181-020-02011-1

Keywords

Online search; Prediction; Forecasting; Time series; Building permits; Google trends

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This paper proposes a method using web search query data to predict building permits in the USA, showing that it outperforms other benchmarks and is robust to different specifications. The use of Google queries makes this approach simple and cost-effective for predicting building permits.
We propose a useful way to predict building permits in the USA, exploiting rich data from web search queries. The relevance of our work relies on the fact that the time series on building permits is used as a leading indicator of economic activity in the construction sector. Nevertheless, new data on building permits are released with a lag of a few weeks. Therefore, an accurate nowcast of this leading indicator is desirable. In this paper, we show that models including Google search queries nowcast and forecast better than many of our good, not naive benchmarks. We show this with both in-sample and out-of-sample exercises. In addition, we show that the results of these predictions are robust to different specifications, the use of rolling or expanding windows and, in some cases, to the forecasting horizon. Since Google queries information is free, our approach is a simple and inexpensive way to predict building permits in the USA.

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