Fields:
Labor Economics, Empirical Macroeconomics


Expected Graduation Date:
June, 2014

Thesis Committee:
Nicholas Bloom (Primary):
nbloom@stanford.edu

Caroline Hoxby:
choxby@stanford.edu

Luigi Pistaferri:
pista@stanford.edu

Ran Abramitzky:
ranabr@stanford.edu

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.

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.

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.

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.

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.

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.