Google trends and inflation talk

Written by The Financial Express | Updated: Apr 29 2008, 01:32am hrs
Viral Shah [hyperlink] pointed me to this example [hyperlink] of Google trends [hyperlink] being useful in thinking about price fluctuations. So that got me thinking about what interesting things one could do with it.

In the muddled monetary policy framework that we have in India today, we ricochet between the three corners of the impossible trinity. When inflation gets uncomfortable, we do exchange rate flexibility. When exchange rate flexibility gets uncomfortable, we summon capital controls. When financial markets plummet in response to capital controls, we do inflation.

Some people call it a multiple objectives framework; I call it shock therapy. But once in this monetary policy framework, what prompts a shift from one corner to another In a democracy, how does one choose the dates when you switch gears

I think theres an element of avoiding the corner of the impossible trinity that is the most unpleasant, based on how a large number of households and firms are screaming.

To focus on the contemporary debate of inflation versus rupee appreciation, heres what Google Trends [hyperlink] shows:

Click on the [graph] to see it more clearly. The red line on the upper graph is the number of Google searches for appreciation. The blue line represents the number of Google searches for inflation. The story seems to be that from roughly May till December 2007, both were roughly neck-to-neck. From end-2007 onwards, inflation has far and away been of much more interest to the people searching on Google.

This is in terms of what people are searching for. In terms of these words occuring in the news (the lower graph), inflation wins hands down, and has always been much more important than appreciation.

Ajay Shahs Blog