Research
Debt and the Consumption Response to Household Income Shocks (Job Market Paper)
This paper exploits a new detailed household dataset with
comprehensive financial information on millions of households to investigate the interaction
between household balance sheets, income, and consumption during the Great Recession.
In particular, I test whether consumption among households with higher levels of debt is more
sensitive to a given change in income. I match households to their employers and use shocks
originating from these employers to derive persistent and unanticipated changes in household
income, finding that highly-indebted households are more sensitive to income fluctuations and
that a one standard deviation increase in debt-to-asset ratios increases the elasticity of
consumption by approximately 15-25%. I employ data regarding household savings and credit
availability to show that these results are driven largely by borrowing constraints, especially
the availability of liquid assets. These estimates suggest that the 2007-2009 recession was
amplified by elevated levels of debt and illiquid assets, causing a fall in consumption
approximately 25% greater than what would have been seen with the household balance sheet
positions in 1983.
Measuring Economic Policy Uncertainty (with Nicholas Bloom and Steven J. Davis)
We develop a new index of economic policy uncertainty (EPU) based on a range
of indicators, including the frequency of newspaper references to policy uncertainty. Our
index spikes near tight presidential elections, after the Gulf wars, the 9/11 attack, the
Lehman bankruptcy, and during the 2011 debt ceiling debate. Several pieces of evidence -
including a human audit of 5,000 newspaper articles - indicate that our EPU index offers a
good proxy for movements in policy-related economic uncertainty over time. Using micro
data, we investigate the effects of EPU on investment and hiring, finding negative effects
for firms heavily exposed to government contracts. At the macro level, positive
innovations in our EPU index foreshadow declines in investment, output and employment
in VAR models. Extending our measurement efforts back to 1900, we find that EPU rose
dramatically in the Great Depression, but only from 1932 onwards when Hoover and then
Roosevelt initiated a period of intense policy activism. We also find a secular rise in policy
uncertainty since the 1960s, coincident with government fiscal and regulatory expansion.
Effects of Immigrant Legalization on Crime: The 1986 Immigration Reform and Control Act
In the late 1970's, rates of undocumented immigration into the United States increased
dramatically. This led to pressure on the federal government to find some way of dealing
with the surge in undocumented immigrants, culminating in the 1986 Immigration Reform and
Control Act (IRCA). This paper examines the effects that the 1986 IRCA, which legalized over
2.5 million undocumented immigrants, had on crime in the United States. I exploit the quasi-
random timing of legalization as well as cross-county variation in the intensity of treatment to
isolate the causal effects of legalization on crime. Following legalization, I find national decreases
in crime of approximately 2%-6% associated with one percent of the population being legalized,
primarily due to a drop in property crimes. This fall in crime is equivalent to 160,000-480,000
fewer crimes committed each year due to legalization. Finally, I calibrate a labor market model
of crime using empirical wage and employment data and find that much of the drop in crime
could be explained by greater job market opportunities among those legalized by the IRCA.
The Impact of Unemployment Insurance on Job Search: Evidence from Google Search Data (with Andrey Fradkin)
We use Google search data to construct the first high-frequency, location-specific
index of job search activity (GJSI). We demonstrate the GJSI's validity and study
the effect of increased unemployment insurance (UI) on job search activity. Using the
universe of administrative Texas UI records from 2006-2011, we show that individuals
receiving UI search less than individuals who are unemployed and who are not receiving
UI. We also find that individuals with 0 to 10 weeks of UI remaining search over two
times more than those with more than 10 weeks remaining. We document that the
GJSI temporarily decreases by up to 4.3% in the 4 weeks after expansions in UI policy.
Our calculations suggest that, while expansions in unemployment insurance do drive
temporary changes in job search, the immediate effects of expansions are unlikely to
result in large changes to unemployment rates.
Does Uncertainty Reduce Growth? Using Disasters as Natural Experiments (with Nicholas Bloom)
A growing body of evidence suggests that uncertainty is counter cyclical, rising sharply in recessions
and falling in booms. But what is the causal relationship between uncertainty and growth? To identify
this we construct cross country panel data on stock market levels and volatility as proxies for the first
and second moments of business conditions. We then use natural disasters, terrorist attacks and unexpected
political shocks as instruments for our stock market proxies of first and second moment shocks. We
find that both the first and second moments are highly significant in explaining GDP growth, with
second moment shocks accounting for at least a half of the variation in growth. Variations in higher
moments of stock market returns appear to have little impact on growth.
What Triggers Large Stock Market Jumps? (with Nicholas Bloom and Steven J. Davis)
Based on readings of next-day newspaper articles, we catalog the proximate cause and geographic source
of all large daily stock market moves (greater than +/-2.5%) in 25 countries over the past 30 years.
Our catalog extends back to 1930 for the United Kingdom and to 1900 for the United States. Using the
United States as a test case, we also compare categorizations across several newspapers and obtain
consistent results. Our catalog shows many instances of correlated large moves across many countries,
but we find many country-specific moves as well. News about or emanating from the United States plays
a disproportionate role in triggering large equity moves around the world in recent decades, even relative
to the U.S. share of world output, but the reverse pattern of large U.S. equity moves in response to
foreign news is comparatively rare. Across almost all countries, we find a much-elevated incidence of
large stock market moves associated with government policy news during the Global Financial Crisis of
2008-09, and afterwards for many countries. We investigate whether these patterns can be explained by
cross-country asset holdings, language, and the size of the originating shocks.
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