Monday, August 29, 2011

Some interesting indices

The Economist has an interesting article on inconspicuous indicators that might help to understand the economy. The magazine asked readers for suggestions and "received many suggestions for different products with which to calculate exchange rates at purchasing-power parity, ranging from Coca-Cola and bottled water to mobile-phone charges and taxi fares." A veterinarian reported that the number of pets brought in for vet care is a leading indicator of economic growth; seems people buy new pets and have optional procedures more often when the economy is about to turn up, and less often when it is about to turn down.

The Economist liked a suggestion that one might use the frequency of "gold price" obtained from Google Trends. Indeed the frequency of the term has increased with the economic crisis and has become more variable.

The curve above shows the trend in the appearance of the word "gold" (as compared with the average over the period, shown as 1.00). It too shows a notable increase since the end of 2007 and notable spikes. Unfortunately, the spikes labeled A, C and D relate to sporting gold medals rather than the price of gold. The B spike was when the price of gold hit $1000. You have to be careful about your indicator.

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