Essays in economics

This thesis consists of two self-contained essays in economics.;The first essay introduces parent-child interactions into the Beckerian model of human capital. The acquisition of human capital, jointly determined by parental investment and child effort, is an equilibrium outcome of the intergenerational interactions, which is Pareto efficient within the family. I show that the equilibrium output of human capital is not affected by the parental authority over child behavior, but is usually lower than the level that maximizes the instantaneous aggregate family welfare. In a family with more than one child, siblings not only compete for parental investments but also directly interact with each other in their effort choices. Exploring these intragenerational connections and their interplay with intergenerational forces, I present a more complete theory of family linkages in the development of human capital. Social interactions among children from different families induce intragenerational feedback effects that are further amplified by intrafamily interactions and accelerate regression towards the mean in the economic status of families.;The second essay explores frequency-specific implications of measurement error for the design of stabilization policy rules. Frequency domain analysis is interesting because the characterization of policy effects frequency by frequency gives the policymaker additional information about the effects of a given policy. Further, some important aspects of policy analysis can be better understood in the frequency domain than in the time domain. This essay develops a rich set of design limits that describe fundamental restrictions on how a policymaker can alter variance at different frequencies. To understand policy effects of different sources of informational limit, I also examine the interaction of measurement error and model uncertainty. For a parameterized example which corresponds to the choice of monetary policy rules in an AR (1) environment, I show that an additive white noise process of measurement error has little impact at low frequencies but induces less active control at high frequencies, and even may lead to more aggressive policy actions at medium frequencies. Local robustness analysis indicates that measurement error reduces the policymaker's reaction to model uncertainty, especially at medium and high frequencies.