2026 Theses Doctoral

Essays in Macroeconomics of Microeconomic Frictions

Kamepalli, Sai Krishna

This thesis comprises three essays on how several microeconomic frictions can affect aggregate outcomes and have implications for macroeconomic policy.

In the first chapter, I develop a theoretical framework that extends the state-dependent model of investment dynamics by incorporating firms’ ambiguity aversion to study how belief distortions affect corporate investment. Ambiguity-averse firms place greater weight on adverse scenarios and take investment decisions more cautiously. Rising ambiguity aversion can account for rising asymmetries in the firm-level investment distribution, an empirical fact observed post the Global Financial Crisis. At the aggregate level, the model generates an empirically consistent missing link between investment rates and rising Tobin’s Q. The calibrated model quantitatively matches both firm-level distributional patterns and aggregate moments in U.S. data over the past three decades. On the policy front, I show that ambiguity aversion reduces the effectiveness of fiscal stimulus by dampening the short-run investment responses. The results highlight the importance of subjective beliefs in shaping fiscal multipliers and suggest that policymakers should integrate firm-level beliefs to improve estimates of policy elasticities.

In the second chapter (joint with Serena Ng and Francisco Ruge-Murcia), we study skewness in macroeconomic time series that may arise exogenously from asymmetrically distributed shocks or endogenously as shocks propagate through production networks. These two possibilities are often considered in isolation by previous theoretical work. To evaluate the relative importance of these channels, we nest these possible sources of skewness in an empirical model where output has a network, a common, and an idiosyncratic component. In this model, skewness can arise not only from the three components but also from coskewness due to the higher-order covariation between components. An analysis of output growth in 43 U.S. sectors shows that coskewness is a key source of asymmetry in the data and constitutes a connectivity channel not previously explored in the literature. To help interpret our results, we construct and estimate a micro-founded multi-sector general equilibrium model and show that it can generate skewness and coskewness consistent with the data.

In the third chapter (joint with Sanhitha Jugulum), we document that households respond almost equally to aggregate and idiosyncratic income shocks, even though the aggregate component of income is much more persistent. This pattern is difficult to reconcile with the standard full-information permanent-income logic, which predicts that more persistent shocks should induce larger consumption responses. A quantitative full-information Huggett model with aggregate risk, disciplined by the estimated income process, predicts far greater pass-through of aggregate shocks than is observed in the data. We show that incomplete information about the source of income fluctuations provides a natural resolution: households observe total income as a signal to extract the aggregate component, and therefore under-react to aggregate shocks. Embedding this inference problem in a heterogeneous-agent model aligns the model-implied estimates more closely with the empirical pass-through estimates and implies substantially weaker aggregate consumption responses to aggregate shocks.