This paper introduces a new internal propagation mechanism into a baseline multi-sector real business cycle (RBC) model and shows that it significantly amplifies the impact of small exogenous shocks - a long-standing quest in the RBC literature. The main motivation for the proposed mechanism is the following: the composition of consumption expenditures shows sizable cross-sectional differences across the population as a function of income and these differences determine the direction towards which people update their consumption bundle as their income change. In the proposed mechanism, these observations are modeled through two types of agents (L and H-skill) who differ in terms of the occupations that they are specialized in and the composition of their consumption baskets. In addition, both types of agents have income dependent (non-homothetic) preferences which induce a strong desire to consume the good that the other type produces. To see how the resulting mechanism operates in response to a positive exogenous shock consider an innovator (H-skill) producing iPhones and a waiter (L-skill) producing dining services. A positive technology shock makes the innovator more productive and raises her income and with the additional income she purchases relatively more dining services. This, in turn, raises the waiters income as the demand for her labor services increases and with the additional income she purchases a new iPhone, which creates further incentive for the innovator to work more. Importantly this second round work incentive for the innovator is not directly related to the original technology shock but to the demand from the waiter and that is exactly why the model generates significantly more amplification compare to other comparable RBC models. I also discuss the way the same mechanism gives rise to an endogenous variation in the average capital content of the goods consumed over the business cycle and how this endogenous variation generates more persistence in the model. 

In this paper, I study the effects of an exogenous investment shock that is correlated with the skill distribution in the population. In the model, agents, who have heterogeneous productivities, are sorted into different occupations based on their comparative advantages over the business cycle. I also assume that each  occupation is associated with a different consumption bundle. This latter assumption implies that as agents switch between low and high-skill jobs their consumption behavior changes in a discrete fashion as well, which in turn gives rise to non-linear income expansion paths at the aggregate level without assuming non-homothetic preferences at the individual level. In this environment, I show that after a positive investment shock, the fraction of agents working in the goods sector increases on impact and those who start working in the goods sector replace their service intensive consumption baskets with goods intensive ones, and therefore the demand for goods increases more relative to the services along the expansion, which in return results in even more agents being hired in the goods sector. I show quantitatively that this endogenous mechanism alone can generate sizable amplification and persistence, even without labor-leisure choice, in contrast to the standard models. The model also suggests an alternative resolution to what is known as the productivity puzzle in the literature. This is because the one-to-one link between output and productivity does not exist in the model, in contrast to the standard models. Instead, the productivity is determined by the aggregate skill distribution and how agents are sorted between two sectors over the business cycle. 

I study the model in Morris and Shin (2002) under strategic information transmission constraints between the public authority and private agents in order to investigate how the precision of the public signal affect the quality of the communication. In the model, a central bank (CB) communicates with two private agents. All three players have different interests over the state of the economy and receive informative but noisy signals when the state is realized. I find that CB only cares about the average bias of the private agents, and CB can truthfully reveal her signal only if the average bias is below a certain threshold. More importantly, as the CB's signal precision increases, the possibility of truthful communication increases in her signal precision which in return enhances her ability to communicate with the private agents.

Research In Progress
Boundaries of Economic Growth: Ownership Inequalities and Finance
On The Mathematical Structure of Pareto Optimal Exchange (Edgeworth Box) Economies
The Existence of Correlated Equilibria under Perfect Competition