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Economics & Finance Seminar: Cristiano Cantore (Bank of England)

Venue: Birkbeck Main Building, Malet Street

No booking required

The Department of Economics, Mathematics and Statistics holds seminars in economics and finance most Wednesdays during term time from 12pm to 1pm in Room 745, Malet Street Building (unless otherwise stated). Presentations are given by staff or invited external speakers.


Cristiano Cantore (Bank of England)
"Workers, Capitalists, and the Government: Fiscal Policy and Income (Re)Distribution"

ABSTRACT: This paper presents a capitalist-worker New Keynesian model that incorporates insights from the recent heterogeneous-agent literature while preserving the tractability of a two-agent framework. In the model, workers receive labor income and can save in bonds subject to portfolio adjustment costs; this friction delivers empirically credible intertemporal marginal propensities to consume that shape the dynamic consumption response to fiscal stimulus. Capitalists own all firm equity and do not supply labor; this concentration of profit income avoids implausible effects on labor supply stemming from cyclical variations in inequality. The model features more plausible stability properties than the traditional New Keynesian benchmark. The embedded fiscal transmission mechanism implies that deficit-financing is expansionary due to redistributive effects. We estimate a medium-scale version of the model, using as an identified moment the novel empirical finding that the response of the labor share of income to an unanticipated increase in government purchases is positive, persistent and hump-shaped. The model is able to replicate this characteristic pattern and the dynamics of other key macroeconomic variables, suggesting that not only the presumed transmission mechanism is better in line with micro evidence but also that the implied aggregate dynamics fit macro data well.

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