This thesis consists of three independent essays studying uncertainty and volatility in the macroeconomy using empirical evidence. In chapter 2, we study the role of the uncertainty of real and financial shocks with different persistence in the business cycle. We use survey data from the Survey of Professional Forecasters as a direct measure of expectations both to identify the real and financial shocks with different persistence and to measure their associated uncertainty. We find that the uncertainty of long-lived transitory real and financial shocks to have the most economically significant impact on output. However, real and financial uncertainty affect output in different directions. While an increase in financial uncertainty is mainly recessionary, an increase in real uncertainty is expansionary. Both real and financial uncertainty are also endogenous to first-moment shocks. We further find that uncertainty responds asymmetrically to first-moment shocks with recessionary shocks triggering stronger uncertainty responses. Finally, uncertainty has a larger role in transmitting long-lived transitory financial shocks compared to real shocks. In chapter 3, we study the impact of commodity price uncertainty on small commodity exporters using Australia, Canada, New Zealand and Norway as sample countries. We measure commodity price uncertainty through the volatility of the shocks to the respective commodity price index of each country. We find that a commodity price uncertainty shock lowers output in all countries. We find little evidence that commodity price shocks are transmitted to output growth through the level of commodity prices. The resulting increase in domestic uncertainty however may prevent a deeper recession through the real option channel. Finally, despite the positive responses of inflation presenting a trade-off for monetary policy, lowering the interest rate can still be effective in speeding up output recovery. Lastly, the lower output growth can be explained by either lower domestic consumption and investments for Australia, New Zealand and Norway or lower exports for Canada. In chapter 4, we use changes in the volatility of macroeconomic shocks in the form of Markov-switching heteroskedasticity to test various restrictions used to identify monetary policy and exchange rate shocks in small-open economy structural vector autoregressions. Using Australian, Canadian and New Zealand data, we find that restrictions that allow for simultaneity between the interest rate and the real exchange rate without restricting the long-run impact of monetary policy shocks on the long-run real exchange rate to be most supported by the data. Impulse responses to monetary policy and exchange rate shocks obtained from such restrictions are consistent with theoretical predictions.

This dissertation studies pricing behavior in the retail gasoline market. The main research questions are: How does traffic congestion affect market power of gas stations? How does traffic congestion affect equilibrium price dispersion between gas stations? Is gasoline price cycle consistent with Edgeworth Cycle in terms of how their shapes respond to aggregate demand elasticity? These questions are explored in three separate chapters respectively using unique datasets comprised of station-level gasoline price data and direction-specific road-level traffic data from metropolitan Sydney and the rest of New South Wales. Evidence from chapter 2 suggests that traffic congestion, through its impact on spatial friction for consumers, dampens the intensity of price competition between gas stations. By exploiting a panel of 61 gasoline stations on 13 roads in Metropolitan Sydney, it is found that the margins of regular gasoline increased with travel delay in local traffic. Specifically, retail margins of regular gasoline increased by 0.32 cents per liter (4%) when travel delay in local traffic has increased unexpectedly by 1 minute per kilometer. Unique to this paper is the high-frequency nature of its data which allows me to examine how fast gasoline companies are responding to spatial frictions at the hourly resolution. Analysis based on a dynamic model suggests that this response is “instantaneous” as margins rise as early as the same hour when a shock in traffic congestion is observed. In chapter 3, traffic congestion is found to have an impact on equilibrium price dispersion between gas stations. Motivated by empirical evidence that the majority of consumers search for cheaper fuel while they drive, I exploit variation in traffic delay to identify the effect of consumer search cost on price dispersion in the equilibrium retail gasoline market. I find that the relationship between price dispersion of regular gasoline and search cost is indeed non-monotonic (inverse U-shaped). This finding is consistent with the consumer search model by a consumer search model presented in the chapter which predicts no dispersion at the extremes: market prices converge to marginal cost when search cost approaches zero and to the monopoly price when search cost approaches the upper bound. I find that at the sample average level of traffic delay (0.387 Min/KM) in New South Wales, pricing for regular gasoline is more consistent with competitive pricing, but becomes more monopolistic once traffic delay rises above 1.20 Min/KM. Finally in chapter 4, I establish new empirical evidence which suggests that gasoline price cycles are consistent with Edgeworth Cycles. Using daily station-level price data for regular gasoline over 2 years, I find that a higher price than a reference-price at the start of a gasoline price cycle has an positive effect on cycle length and a negative effect on undercutting aggressiveness. Based on established empirical evidence that gasoline demand is reference-dependent and the predicted pricing response to aggregate demand elasticity under the Edgeworth Cycle equilibrium, I infer from these results that the shape of a gasoline price cycle depends on aggregate demand elasticity the same way the shape of a Edgeworth Cycle does. Insights from this dissertation can inform public agencies who are concerned with addressing the issue of traffic congestion and regulators who are concerned with competition and pricing behavior in the retail gasoline industry.

Chapter 1 provides an introduction to this thesis. It is primarily an examination of how empirical methods in economics can be used for political and public economic analysis. The ultimate goal of this thesis is to propose methods from empirical economics that could be useful for the analysis and practice of public policy. Chapter 2 uses a novel Australian dataset to show the effect of cross-sectional weather shocks on voting behaviour in the 2016 Australian federal Senate election. I spatially link every ballot cast at the polling place level to climate data and Census demographic data. I find evidence that cold temperature shocks affect voting at the intensive margin, causing people to commit more errors on the ballot paper. I also document heterogeneous effects of temperature on voting mistakes, with cold shocks having greater effects on citizens born overseas and citizens without tertiary education. I show that my findings are consistent with existing evidence that cold weather increases the cost of performing cognitive tasks. Chapter 3 is a descriptive analysis of voter preferences in the 2016 Australian Senate election. It uses the rank ordered logit model (also called the exploded logit or the Plackett–Luce model) to recover choice parameters of Australian voters in a federal Senate election. When voters convey their preference rankings over political parties in an election they select on numerous characteristics, including policy. By using the rank ordered logit model to include voters' six most preferred choices, I observe a distinctly different set of policy preferences than when only first preferences are considered. This is due to the large amount of policy variation in lower order rankings. Following the communicative voting literature I hypothesise that voters have different motivations governing higher and lower voter rankings. Specifically, first preferences appear to be instrumental, in that most first preferences go to parties with a high probability of being elected. Lower rankings are hypothesised to expressive, conveying the expressive policy preferences of voters. I conduct Hausman tests on regressions with the higher rankings removed to show support for this hypothesis. This paper aims to give an indication of the kinds of issues that voters select on as well as explore specific voting behaviours. In this way, this paper considers whether ranked voting outcomes could be used by public policy makers to determine which issues matter to the public and which are less important. Chapter 4 uses wellbeing and income tax data from the United States to show that an individual's life satisfaction varies due to changes in the amount of taxes paid per household in their ZIP code, net of the effect of own income. Specifically, when others in the highest income tax bracket pay more income tax, it has a positive effect on own wellbeing. Conversely, when others in the lowest income tax bracket pay more income tax, it has a negative effect on own wellbeing. These findings hold irrespective of an individual's own level of income and hence the own income tax bill, indicating that the life satisfaction effect of income tax on a particular income group is not determined by membership of that group. We rely on an instrumental variables approach to identify our effect, using simulated state level marginal income tax rates to instrument for the amount of taxes paid. We use marginal tax rate data from the NBER TAXSIM model to achieve this. Chapter 5 concludes and summarises this thesis.

Global climate change is expected to increase global mean surface temperature, precipitation variation, and lead to more frequent and intense natural disasters. The adverse consequences of these climatic events are likely to borne disproportionately by developing countries. This thesis quantifies the causal effects of changing climatic conditions in developing countries and identifies the channels through which the economy is affected. In Chapter 2, I examine the direct and indirect consequences of floods on manufacturing establishments. I construct a unique panel dataset of flood inundations in India using high-precision satellite images that I match with formal and informal sector establishment-level data. I document significant heterogeneity in vulnerability and resilience to floods within the formal manufacturing sector. The least-productive formal establishments shut down after floods but there is no labor reallocation to more productive establishments. Instead, I find evidence of labor reallocation to informal household-run microenterprises. Given that informal firms are far less productive than formal ones, this flood-induced reallocation will result in a reduction in aggregate productivity. Indeed, I find that a 10% increase in the incidence of flooding leads to a 17.3% reduction in aggregate productivity in the manufacturing sector. In Chapter 3, I explore how high temperatures affect the output and productivity of informal household-run microenterprises. I use detailed production data on informal manufacturing microenterprises in India and combine them with exogenous year-to-year variations in the annual distribution of daily temperatures. I show that an increase in the number of hot days significantly reduces output produced by informal microenterprises by reducing worker productivity and working hours. These negative effects are mainly on the worst-off enterprises that have low capital and electricity intensity. Using household-level data, I also that the negative impact of high temperatures on microenterprises leads to a reduction in the welfare of households working in the informal economy by reducing their consumption. These findings suggest that without adaptation measures, temperature-driven productivity shocks can undermine hard-fought poverty reduction in developing countries. In Chapter 4, we explore the spillover effects of extreme rainfall on the consumption expenditure of rural agricultural households in India. We exploit exogenous variation in rainfall variability in own-district and neighboring districts and combine those with household-level panel data. We show that while greater own-district rainfall raises rural household consumption, greater rainfall in neighboring districts has a negative effect on consumption. We document that these negative effects are mainly on rural agricultural households as the reduction in crop prices is the main channel for the spatial spillover effect of rainfall from neighboring districts. Thus, our findings suggest that climate change adaptation policies to protect farmers should also consider the spillover effect of greater rainfall.

This thesis consists of three essays examining the causal effects of major policy changes affecting old and young Australians. In the first essay, I examine the distributional effects of a reform in 1994 that gradually increased women’s eligibility age for the retirement pension from 60 to 65. Using detailed longitudinal data, I find strong negative effects on household incomes for low to middle income households but little impact on households in the top half of the distribution. These unequal impacts meant that, among households containing older women, the reform increased relative poverty rates by 33 to 39 percent and inequality measures by 12 to 15 percent. These results demonstrate that increases in pension-eligibility ages, which are occurring in many countries as the population ages, can have strong regressive effects. In the second essay, I study the impact of the same reform on female labour force participation. Specifically, I replicate and extend the work of Atalay and Barrett (Review of Economics and Statistics 2015, 97(1): 71–87). Using repeated household surveys and a differences-in-differences design in which male cohorts form the comparison group, Atalay and Barrett estimate that the reform increased female participation rates by 12 percentage points. I successfully replicate this estimate but show, using earlier data, that the underlying parallel-trends assumption did not hold before the reform because of a strong female-specific participation trend across cohorts. Accounting for this trend, the estimated effect of the reform on female participation falls by two-thirds and becomes statistically insignificant at conventional levels. In the third essay, I focus on a policy affecting much younger adults. Specifically, I examine the effects of a road-safety restriction in New South Wales, Australia that prohibits probationary drivers from driving late at night with multiple passengers. Using linked administrative data on drivers’ licences and crashes, I estimate that the restriction caused a 57 percent reduction in late-night crashes involving probationary drivers with multiple passengers. Interestingly, the decline persists after the probation period, albeit in a weaker manner. This appears to result from a persistent reduction in late-night driving with passengers, which suggests that long-term driving habits can be shaped by such restrictions.

This thesis explores the interplay of search frictions and market power. In the first essay, we study how prices are negotiated between consumers and firms. In the electricity market that we study, with competitive retailers, fixed and variable charges vary widely across consumers. We implement an audit study to identify the sources of price dispersion. We create a call centre staffed by actors that call real call centres to obtain rates for fictitious consumers with experimentally-assigned combinations of consumer characteristics. We find that of offline search leads to larger discounts than online search. Firms reduce their profit margins by 30% for call-in consumers who are informed about and who negotiate using low reference prices. We also document cross-sectional price discrimination between new consumers in a market and existing consumers. Holding price informedness and other consumer characteristics fixed, firms are less willing to negotiate lower prices with new arrivals than with existing clients of rival firms. My second essay investigates the impact of a mandatory information disclosure policy on market competition in the retail gasoline context. Information disclosure policies enhance search and are implemented with the aims of increasing demand elasticities and creating competition. However, if price transparency also makes it easier for firms to monitor their rivals’ behaviour, this raises concerns about tacit collusion. As such, the equilibrium impact on competition depends on which effect dominates. My study shows that the price disclosure policy leads to margin-enhancing effects in small regional markets. Digging deeper, I find that these margin-enhancing effects are directly associated with an equilibrium price transition, where a dominant firm uses price leadership to communicate their intention to transit from a price cycle equilibrium to a more profitable fixed price equilibrium. This transition, which occurred immediately after the information disclosure policy was introduced, suggests that firms were potentially using the platform to coordinate with each other. The final essay investigates how consumer search on price transparency platforms varies across socio-economic groups. In recent years, there has been a push for demand-side policies that aim to help consumers, especially disadvantaged households, make more informed decisions. However, it is not well-known who these initiatives benefit most. Therefore, this essay investigates how users on a price transparency platform who belong to different socio-economic backgrounds respond to changes in price dispersion. In the context of retail gasoline, my analysis reveals heterogeneous search responses to changes in price dispersion across socio-economic groups. In particular, I find that users who get the most value from search relative to income, such as the most vulnerable households, are least engaged in search.

Do input-output linkages impact growth and development? This dissertation provides three main chapters studying the role of input-output linkages in structural change and productivity measurement. I find that (i) input-output linkages offer a new mechanism to account for structural change, which therefore complements the structural change literature; (ii) input-output linkages affect productivity measurement, particularly impact sector-level productivity measurement. Chapter 2 presents new evidence and mechanism of input-output linkages in structural change. Sectors with a larger growth of supply (forward) linkages of intermediate inputs absorb more labor to satisfy the rising demand for inputs sourcing from the downstream sectors. Sectors with a larger growth of demand (backward) linkages of intermediate inputs displace more labor, due to the increasing reliance on inputs sourcing rather than in-house production. Manufacturing sector increasingly sources services inputs, such as business services and management services, prompting a rise of services and a decline of manufacturing. Motivated by the evidence and mechanism in Chapter 2, Chapter 3 develops a general equilibrium model and quantifies the new mechanism of input-output linkages in structural change. The model features endogenous input-output linkages, nonhomothetic constant-elasticity-of-substitution (CES) preferences and technology, and heterogeneous firms. The model is structurally calibrated to the World Input-Output Database which contains 35 major economies through 1995-2007. I find that (i) the supply-linkages effects are at least comparable to other mechanisms in the literature, such as the price effects due to the sector-biased technological change; (ii) the demand-linkages effects are less critical due to the stable use of intermediate inputs across years; (iii) about half of the structural change attributes to the rising comparative advantage for supplying intermediate inputs by the services sector relative to by the manufacturing sector. Chapter 4 studies the role of input-output linkages in productivity measurement. I construct two hypothetical economies in the model. In the input-output economy, sectors produce gross output by using both intermediate and primary inputs. In the value added economy, sectors produce value added by using only primary inputs. I compare the two economies. I find that (i) aggregate productivity is theoretically equivalent; (ii) sectoral productivity measurement are different for all sectors and countries; (iii) without taking input-output linkages into account, previous measures of productivity are biased.

In Chapter 1, I define a novel concept of low productivity spells. Instead of treating productivity as a continuous variable, I define a low-productivity state as poor productivity growth over 2 years consecutively. This provides an alternative insight into understanding firms which pose a potential drag on aggregate productivity growth. Using a competing risk framework, I find that over the course of 1991--2014, the exposure of import competition from China had a significant and negative effect on the exit from these low-productivity spells into high-productivity performance for listed firms in the U.S. On the other hand, this import exposure had no effect on the same firms shutting down. Together, these imply that the growth in import penetration from China had the effect of trapping U.S. manufacturing firms in low-productivity spells for longer. In Chapter 2, I investigate the effect of the America Invents Act (AIA) in 2011 on the patents granted by small firm compared with large firms. In first constructing my dataset, I further bootstrap the algorithm proposed by Autor, Dorn, Hanson, Pisano and Shu (2017) in merging patent data from the United States Patents and Trademarks Office USPTO with firm-level data from COMPUSTAT to better correct for false positives and true negatives, as well as enabling it to be more replicable. With a difference-in-difference framework using de-trended patenting data, I find a negative effect by the AIA on patents granted to small firms compared with large firms. However, this effect appears to be driven primarily by the amount of cash holdings firms have. A triple-difference framework which includes cash holdings finds the AIA had no significant effect on the patents granted to small firms which are cash-poor compared with large firms which are also cash-poor. In Chapter 3, I examine the effect of Chinese import competition on innovation by U.S. manufacturing firms originally investigated by Autor, Dorn, Hanson, Pisano and Shu (2017) but within a framework that differentiates this effect between small and large firms. In addition, I also measure the innovation response by firms using patents granted to them instead of their patent applications per se. With a model without heterogeneous effects, I find that the import penetration growth from China had increased innovation on average by all U.S. manufacturing firms when innovation is measured by the patents granted each firm. In a model with heterogeneous effects, I find this effect to be insignificantly different for large firms compared with small firms, and for cash-rich firms compared with cash-poor firms.

This thesis studies three essays in macroeconomics. The first study evaluates the welfare effects of trade in a setting with risk averse workers and uncertainty in labour market outcomes. We provide conditions under which a small change in relative prices due to trade reduces welfare in both a static as well as a dynamic economy. Using a dynamic model we quantify the set of prices that result in a welfare loss following trade. We also examine the welfare implications of large price changes due to trade. For a realistic calibration, the gains from trade exist but are smaller than in a world with risk neutral individuals. The second study examines the labour market impacts of an extension of unemployment insurance policy. Unemployment insurance benefits are typically extended during recessions. Existing research shows that this policy increases the unemployment rate, the average duration of unemployment and the long term unemployment rate. But less is known about why these changes occur. I construct a job search model with an endogenous participation decision to quantify the contributions of (i) search effort (ii) job selectivity and (iii) labour market attachment to changes in unemployment outcomes. In a model calibrated to the US economy, I show that following a permanent extension of benefits for 10 weeks the unemployment rate increases by about 0.4 percentage points. I find that increased participation accounts for about 50% of the increase, while reduced search effort and increased selectivity each explain about 25% of the increase. This finding suggests that labour market participation is the most important margin in driving changes in the unemployment rate. In the third study, I examine the relationship between income inequality, sovereign borrowing and default decisions. To this end, I extend the traditional endogenous sovereign default framework proposed by Eaton and Gersovitz (1981) to allow for ex-ante income heterogeneity and a tax/transfer system for income redistribution across households. I show that an increase in income inequality increases incentives of a government to default. An increase in income inequality increases the need for income redistribution. A (utilitarian) government may find it optimal to default in order to transfer more resources to households for consumption. I show that, in equilibrium, in response to an increase in income inequality the government may issue less debt. In turn, the incentives to default decreases. In a simulated economy, I show that for a small increase in income inequality of about 5% relative to the equilibrium, these two forces offset each other and the probability of default remains unchanged. I find that, in a model with no income inequality, the impact of an increased debt dominates and the probability of default increases.

This dissertation provides three chapters that study uncertainty and its macroeconomics effects by using large data sets and combining both empirical and theoretical evidence. In the first chapter, we develop uncertainty indices for the United States and Australia based on freely accessible, real time Google Trends data. Our Google Trends Uncertainty (GTU) indices are found to be positively correlated to a variety of alternative proxies for uncertainty available for these two countries. VAR investigations document an economically and statistically significant contribution to unemployment dynamics by GTU shocks in the United States. In contrast, the contribution of GTU shocks to unemployment dynamics in Australia is found to be much milder and substantially lower than that of monetary policy shocks. The second chapter estimates the impact of uncertainty shocks in a disaggregate model featuring state-level economic activity and uncertainty proxies. Uncertainty is measured using Google search data. The disaggregate model is shown to capture important spillover effects which a model focusing only on aggregate data would overlook. The impact of national uncertainty shocks is heterogeneous, and on average is quantitatively less relevant as state-level uncertainty shocks in explaining the unemployment dynamics at the state level. The importance of national uncertainty shocks is found to be related to the state-specific industry compositions and fiscal deficits. The last chapter shows how unexpected changes in uncertainty about the commodity market affects real economic activity in a small commodity-exporting country. Using Australia as a case study, I first propose a novel commodity uncertainty index that is measured by the conditional volatility of the unpredictable component of commodity prices. I find that Australia has experienced more uncertainty in the commodity market recently. Second, a VAR model is estimated to examine the respective effect of commodity uncertainty shocks. The VAR evidence shows that commodity uncertainty shocks lower output, consumption, investment and net exports. In contrast, hours worked do not fall. Last, I interpret these VAR results in a non-linear multi-sector DSGE model of the Australian economy by estimating key parameters in the DSGE model to match its responses to the VAR responses. Uncertainty shocks in the DSGE model trigger a precautionary response and cause a decline in output, consumption, and investment. By contrast, hours worked do not fall, a finding that could be explained by the sectoral allocation effect.

Recent young adult cohorts have delayed moving out from the parental home, reflecting social trends and macroeconomic conditions that undermine the affordability of independent living. This dissertation focuses on the timing of these nest-leaving transitions in relation to other significant decisions and events in early adulthood. Each of the three chapters investigates whether potentially adverse outcomes lead to earlier nest-leaving, which has been shown to be financially harrowing and disadvantaging. To address these research questions, I utilize longitudinal data from the Household Income and Labour Dynamics in Australia (HILDA) survey. Methodologically, I extensively apply event history models and focus on effects on the timing of nest-leaving events. I address potential endogeneity between the nest-leaving decision and other choices in early adulthood by estimating these simultaneously, accounting for selection effects through random effects models. The first essay considers how heavy drinking and cigarette smoking affect the timing of leaving home. As risky health behaviors, I find evidence that young adults who drink heavily leave home sooner than moderate or non-drinking counterparts. Among women, early initiation of alcohol or tobacco use by age 15 further compounds nest-leaving risks, showing that substance usage is far more consequential for their co-residence with parents. The second essay investigates human capital investment in tertiary education, to determine if graduation or dropout rates disfavor students who move out and maintain their own independent household. This chapter also considers whether parents condition their offer of co-residence on the young adult's enrollment. The results indicate that men clearly benefit while co-residing, as they graduate sooner than counterparts who live independently. However, women do not significantly benefit from co-residence in this way, and instead tend to move out around the time of graduation. The third essay examines the pathways out from the parental home -- either with or without a partner -- and how these may be affected by negative life events. Sudden illness or injury of the young adult or a family member, the death of a close friend or a relative, and victimization to violent or property crimes are unforeseeable events that can compromise the young adult's ability to navigate key transitions in adulthood. Results suggest that men are more likely to remain at home longer after a family member is in ill health, whereas women are more likely to leave home soon after the death of a close friend or experiences of property crime. The findings across these essays consistently emphasize women's short-lived co-residence with parents, surfacing from disaggregated analyses by gender. Several factors which contribute to earlier nest-leaving are themselves disadvantaging in nature, and thus raise a concern that negative experiences early in adulthood could beget further hardships later on. This dissertation contributes to the nest-leaving literature by highlighting potential precursors of disadvantage, even while the young adult co-resides and receives in-kind parental transfers.

This thesis examines the effect of pressure on a sample of highly-trained individuals in a simple strategic setting. By modelling the strategic interaction between servers and receivers in professional tennis matches, the main contribution of this research is to present an environment where pressure can be introduced in a practical and reasonable manner. Using this environment, I am able to investigate the effect that pressure has on players' behaviour and its consequences for their payoffs. Thus, the analysis in this thesis is two-fold. The first component of the analysis examines the effect that pressure has on the decision-making ability of players. The second component examines the effect that pressure has on their point outcomes. The results indicate that pressure does have a marked effect on the service decisions of many players in the sample. I find that a significant number of servers have a particular strategy that they choose to play more often under pressure than they do otherwise. I also investigate the effect of pressure on the level of correlation between past and present choices and find similar results. The implication of this is that servers' behaviour changes when they are faced with high pressure situations. Since players are also found to behave in accordance with theoretical predictions in the absence of pressure, this leads to the possibility that players could be performing sub-optimally in such situations. Indeed, the results confirm that pressure has a generally negative effect on servers' chances of winning the point. Interestingly, there is less evidence for a link between the two effects. The correlation between the players whose choices change under pressure and those players whose outcomes are affected is small. This leads me to believe that there is a possibility that either player could benefit from exploiting the sub-optimal choices of the other in high pressure scenarios. These results suggest that the theoretical models that have been previously used to describe the serve-return interaction may be insufficient in the presence of pressure. Consequently, researchers may be led to incorrect predictions about behaviour in high-stakes environments by excluding pressure from their models. Therefore, I also provide some theoretical basis to rationalise the observed results by proposing several approaches to incorporate pressure into existing models.