Three Essays on Economic Policy

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Date
2014-10-22
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Publisher
Johns Hopkins University
Abstract
A substantial empirical literature suggests that an unemployed person’s future earning capacity diminishes as the length of an unemployment spell increases. But theoretical models analyzing the incentive effects of unemployment insurance (UI) have assumed that spell length is unrelated to future earning capacity. I show that when a standard model is modified to incorporate awareness by the unemployed of their diminishing earning capacity, it implies an increase in search intensity of up to 30%. I then examine a variant of the model that assumes people’s beliefs match evidence from Davis and von Wachter (2011) about how much the rate of decline in earning capacity increases during recessions. The predicted increase in the unemployment rate during the Great Recession is 0.5 percentage points less than in a traditionally calibrated model, because fearful agents search harder. The Supplemental Nutritional Assistance Program (SNAP) which is available to all low income, low asset individuals in the US, provides a uniform nominal benefit nationally, but the real purchasing power of that benefit varies across states. Using a recently eveloped relative regional price index, I create a data series for the real value of SNAP, unemployment insurance (UI) and other social insurance payments across US states. Using these data in conjunction with the structural model developed in Chapman (2013), the paper quantifies the differential impact of UI extensions on unemployment rates in different states during the Great Recession. Over the last few decades central banks have begun to release more information on their monetary policy decisions. For example, the Reserve Bank of Australia (RBA) made changes to its communication policies in 2007, releasing minutes from Board meetings and publishing media releases on the afternoon of interest rate decisions for all meetings. My research measures how these announcements impact interest rate futures, bond markets, equity markets, and currencies, using intradaily data. Gurkaynak, Sack and Swanson (2005) use a high-frequency event study analysis to estimate the effects of two factors on asset prices in the US. Following a similar methodology I identify these factors in RBA announcements and estimate the impact of the factors on financial markets.
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Keywords
Unemployment Insurance, Announcement Effects
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