A recession occurs when a economy shrinks for more than two consecutive quarters. It’s often triggered by unexpected shocks like wars, pandemics or asset bubbles bursting, but can also happen due to factors like over-expansion and overheating in the economy, a decline in consumer confidence and falling stock prices.
A recession is one of the most serious economic events a country can face. It can cause a sharp drop in economic activity, leading to job losses and lower spending. It’s important to be prepared for a downturn and plan ahead in order to avoid a recession, or at least mitigate its impact.
Investors and economists have been raising their odds of a recession this year as a result of President Trump’s tariff policies. Goldman Sachs raised the probability of a US recession to 45% and JPMorgan reduced its chances of a global recession to 40%.
Existing measures of the probability of a recession draw on financial and economic indicators and tend to be low-frequency and general. They are therefore not able to capture specific fears of economic agents. This research aims to develop an easily accessible measure of recession fears that can be updated in real time. It will be based on keywords reported by Google as being searched for by economic agents. This approach is distinct from existing Google search-based proxies, which are primarily determined by researchers and thus can have inherent bias. It is a powerful and cost-effective method for quantifying fear in the economy.