About Me

I was born in Potenza, Basilicata (Italy), on the 5th of May 1981. In 2004 I graduated from Bocconi University and I moved to Barcelona to study a MSc in Economics at Pompeu Fabra University. After a one-year scholarship at Carlos III University in Madrid, in 2006 I moved to the University of Kent in Canterbury (UK) as a PhD student. In September 2009 I started as a lecturer at the University of Surrey where I have also contributed to the development of the Centre for International Macroeconomic Studies. In April 2013 I was promoted to Senior Lecturer and in August 2018 to Reader. In September 2018 I joined the Research Hub of the Bank of England as a Senior Research Economist. Over the years I've also been at OECD and ECB as an intern, at the Banco de España as a research fellow and at the University of California San Diego as a visiting professor. Over the years I have been teaching various courses on Dynamic Stochastic General Equilibrium (DSGE) models construction, simulation and estimations using Dynare here at CIMS or in New Delhi, Porto, Glasgow, Birmingham, Cagliari, Abuja and Berlin.

Contact Details

Cristiano Cantore
Research Hub, Bank of England
Threadneedle Street, London EC2R 8AH

tel: +44 (0)2034614469
email: cristiano[dot]cantore[at]bankofengland[dot]co[dot]uk

Journal Articles

Optimal Fiscal and Monetary Policy, Debt Crisis and Management

Macroeconomic Dynamics April 2019
joint with Paul Levine (University of Surrey), Giovanni Melina (IMF) and Joseph Pearlman (City University London)

WP version Journal version

Abstract: The initial government debt-to-GDP ratio and the government’s commitment play a pivotal role in determining the welfare-optimal speed of fiscal consolidation in the management of a debt crisis. Under commitment, for low or moderate initial government debt-to-GPD ratios, the optimal consolidation is very slow. A faster pace is optimal when the economy starts from a high level of public debt implying high sovereign risk premia, unless these are suppressed via a bailout by official creditors. Under discretion, the cost of not being able to commit is reflected into a quick consolidation of government debt. Simple monetary-fiscal rules with passive fiscal policy, designed for an environment with “normal shocks”, perform reasonably well in mimicking the Ramsey-optimal response to one-off government debt shocks. When the government can issue also long-term bonds – under commitment – the optimal debt consolidation pace is slower than in the case of short-term bonds only, and entails an increase in the ratio between long and short-term bonds.

JEL classification: E52, E62, H12, H63
Keywords: Optimal fiscal-monetary policy, Ramsey policy, time-consistent policy, opti- mised simple rules, debt consolidation, long-term debt, fiscal limits, sovereign default risk.

The Dynamics of hours worked and technology

Journal of Economic Dynamics and Control September 2017
joint with Miguel León-Ledesma (University of Kent) and Filippo Ferroni (Chicago FED and University of Surrey)

WP version Journal version Online Appendix

The response of hours worked to technology shocks in the postwar US economy has increased over time. We offer a structural interpretation of this important time-varying macroeconomic moment. The time varying patterns captured by a structural VAR are consistent with those obtained from a parsimonious RBC model with a less than unitary elasticity of substitution between capital and labor (σ). The observed changes in the response of hours are attributable to increases in the magnitude of the degree of capital-labor substitution. Finally, we conjecture that the observed time-variation in σ is related to changes in the skill composition of the work force and biases in technological change.

JEL classification: E32, E37, C53
Keywords: Real Business Cycles models, Constant Elasticity of Substitution production function, Hours worked, technology shocks.

CES technology and Business Cycle fluctuations

Journal of Economic Dynamics and Control December 2015
joint with Paul Levine (University of Surrey), Joseph Pearlman (City University London) and Bo Yang ( Xi'an Jiaotong - Liverpool University)

WP version Journal version Online Appendix

We contribute to an emerging literature that brings the constant elasticity of substitution (CES) specification of the production function into the analysis of business cycle fluctuations. Using US data, we estimate by Bayesian-Maximum-Likelihood methods a standard medium-sized DSGE model with a CES rather than Cobb–Douglas (CD) technology. We estimate a elasticity of substitution between capital and labour well below unity at 0.15–0.18. In a marginal likelihood race CES decisively beats the CD production and this is matched by its ability to fit the data better in terms of second moments. We show that this result is mainly driven by the implied fluctuations of factor shares under the CES specification. The CES model performance is further improved when the estimation is carried out under an imperfect information assumption. Hence the main message for DSGE models is that we should dismiss once and for all the use of CD for business cycle analysis.

JEL classification: C11; C52; D24; E32
Keywords: CES production function; DSGE model; Bayesian estimation; Imperfect information.

Shocking Stuff: Technology, Hours and Factor Substitution

Journal of the European Economic Association January 2014
joint with Miguel León-Ledesma (University of Kent), Peter McAdam (ECB) and Alpo Willman (ECB)

WP version Journal version Online Appendix

The response of hours to technology shocks is a key controversy in macroeconomics. We show that differences between RBC and NK models hinge on highly restrictive views of technology. We introduce CES production technologies and demonstrate that the response of hours depends on the factor-augmenting nature of shocks and the capital–labor substitution elasticity in both models. We develop analytical expressions to establish the thresholds determining its sign. This opens new margins for shock identification combining theory and VAR evidence. We discuss how our models provide new robust restrictions for empirical work, especially using the labor income share.

JEL classification: E32, E23, E25
Keywords: Technology Shocks, Hours Worked, RBC and NK models, Nor- malization, Factor Substitution, Factor Bias.

A Fiscal Stimulus and Jobless Recovery

The Scandinavian Journal of Economics April 2014
joint with Paul Levine (University of Surrey) and Giovanni Melina (IMF)

WP version Journal version Online Appendix

We analyze the effects of a government-spending expansion in a dynamic stochastic general equilibrium model with Mortensen–Pissarides labor-market frictions, deep habits in private and public consumption, investment adjustment costs, a constant elasticity of substitution (CES) production function, and adjustments in employment at both intensive and extensive margins. The combination of deep habits and CES technology is crucial. The presence of deep habits magnifies the responses of macroeconomic variables to a fiscal stimulus, while an elasticity of substitution between capital and labor in the range of available estimates allows the model to produce a scenario compatible with the observed jobless recovery.

JEL classification: E24; E62
Keywords: CES production function; deep habits; fiscal policy; labor-market search-match frictions; unemployment.

Getting Normalization Right: Dealing with ’Dimensional Constants’ in Macroeconomics

Journal of Economic Dynamics and Control December 2012
joint with Paul Levine (University of Surrey)

WP version Journal version

We contribute to a recent literature on the normalization, calibration and estimation of CES production functions. The problem arises because CES ‘share’ parameters are not in fact shares, but depend on underlying dimensions—in other words they are ‘dimensional constants’. It follows that such parameters can neither be calibrated nor be estimated unless the choice of units is made explicit. We use an RBC model to demonstrate two equivalent solutions. The standard one expresses the production function in deviation form about some reference point, usually the steady state of the model. Our alternative, ‘re-parameterization’, expresses dimensional constants in terms of a new dimensionless (share) parameter and all remaining dimensionless ones. We show that our ‘re-parameterization’ method is equivalent and arguably more straightforward than the standard normalization in deviation form. We then examine a similar problem of dimensional constants for CES utility functions in a two-sector model and in a small open economy model; then re-parameterization is the only solution to the problem, showing that our approach is in fact more general.

JEL classification: E23; E32; E37
Keywords: CES production function; Normalization; CES utility function.

A Fiscal Stimulus with Deep Habits and Optimal Monetary Policy

Economics Letters October 2012
joint with Paul Levine (University of Surrey), Giovanni Melina (IMF) and Bo Yang (Swansea University)

WP version Journal version

A New-Keynesian model with deep habits and optimal monetary policy delivers a larger-than-1 fiscal multiplier and consumption crowding in. Optimized Taylor-type rules dominate a conventional Taylor rule. Consumption is crowded out if the Taylor rule is suboptimal or if commitment is absent.

JEL classification: E30; E62
Keywords: Deep habits; Optimal monetary policy; Price-level rule.

Work in progress

Workers, Capitalists, and the Government: Fiscal Policy and Income (Re)Distribution

Work in progress 2019
joint with Lukas Freund (University of Cambridge)

WP version

This paper presents a capitalist-worker New Keynesian model for fiscal policy analysis that incorporates insights from the recent heterogeneous agent, incomplete markets literature while preserving the tractability of a two-agent framework. In the model, capitalists earn income from firm profits and investing in physical capital, while workers only receive labor income. Portfolio adjustment costs deliver realistic intertemporal marginal propensities to consume, and the concentration of profit income among wealthy capitalists avoids implausible income effects on labor supply. The embedded fiscal transmission mechanism implies that deficit-financing is expansionary due to redistributive effects. We estimate a medium-scale version of the model by Bayesian impulse response matching, drawing on a novel stylized fact: 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 under a plausible parameterization, 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.

JEL classification: E23, E32, C52.
Keywords: Keywords: Labor Share, Fiscal Policy Shocks, DSGE models.

The Missing Link: Labor Share and Monetary Policy

Submitted 2019
joint with Miguel León-Ledesma (University of Kent),and Filippo Ferroni (Chicago FED)

WP version CEPR WP Bank Underground VoXEU Bloomberg view

The New-Keynesian transmission mechanism of monetary policy has clear implications for the behavior of the labor share. In the basic version of the model, the labor share is negatively related to the price markup and hence is pro-cyclical conditional on monetary policy shocks. However, little empirical evidence is available on the e↵ect of monetary policy on the labor share and its components. We present a comprehensive cross country empirical analysis and find that the data are at odds with the theory. Cyclically, a monetary policy tightening increased the labor share and decreased real wages and labor productivity during the Great Moderation period in the US, the Euro Area, the UK, Australia and Canada. We then examine models allowing for a wide range of nominal and real rigidities that are important to separate the dynamics of the markup and the labor share. We show that models that do a good job at reproducing the responses of real variables to a monetary policy shock are unable to reproduce the responses of the labor share observed in the data.

JEL classification: E23, E32, C52.
Keywords: Keywords: Labor Share, Monetary Policy Shocks, DSGE models.

Making Automation Worthwhile: Are Wages the Key to the UK Productivity Puzzle?

Work in progress 2019
joint with Lukas Freund (University of Cambdridge)

Abstract: Coming soon!

Deep versus Superficial Habits: It’s all in the persistence

Permanent WP 2018
joint with Paul Levine (University of Surrey) and Giovanni Melina (IMF).

WP version

Bayesian estimation is employed to investigate whether deep as opposed to superficial habit improves the fit of a dynamic stochastic general equilibrium model. If the stock of superficial habit features the additional persistence typical of deep habit, the two specifications are virtually as good. Introducing deep habit in public consumption does not improve the model’s fit.

JEL classification: E30, E62.
Keywords: Keywords: DSGE, Deep habit, Bayesian estimation.

Chapters in Books

The Science and Art of DSGE Modelling I. Construction and Bayesian Estimation

Handbook of Research Methods and Applications in Empirical Macroeconomics - Chapter 18 - eds N. Hashimzade and M. Thornton, Edward Elgar Publishing 2013
joint with V. Gabriel (University of Surrey), P. Levine (University of Surrey), J. Pearlman (City University) and B. Yang (Swansea University)

The Science and Art of DSGE Modelling II. Model Comparisons, Model Validation, Policy Analysis and General Discussion

Handbook of Research Methods and Applications in Empirical Macroeconomics - Chapter 19 - eds N. Hashimzade and M. Thornton, Edward Elgar Publishing 2013
joint with V. Gabriel (University of Surrey), P. Levine (University of Surrey), J. Pearlman (City University) and B. Yang (Swansea University)

Buy here


Breaking the Feedback Loop: Macroprudential Regulation of Banks' Sovereign Exposures

17th Workshop on Macroeconomic Dynamics: Theory and Applications LUISS University Rome 2018
by J. Abad

my discussion

State Dependence in Labor Market Fluctuations: Evidence, Theory and Policy Implications

16th Workshop on Macroeconomic Dynamics: Theory and Applications Universit `a Cattolica Milano 2017
by C. Pizzinelli and F. Zanetti

my discussion

E Pluribus Unum: Macroeconomic Modelling for Multi-agent Economies

Macro Banking and Finance Workshop - Universita’ degli Studi Milano Bicocca 2013
by T. Assenza and D. Delli Gatti

my discussion

Economic Integration and Structural Change

2nd Workshop on Structural Change and Macroeconomic Dynamics - University of Surrey 2012
by J. Imbs, C. Montenegro and R. Wacziarg

my discussion

Capital-Labor Substitution, Structural Change and Growth

Structural Change and Macroeconomic Dynamics Workshop - University of Cagliari 2012
by F. Alvarez-Cuadrado, N. Van Long and M. Poschke

my discussion

  • Oh, I’ve certainly never been short of pleasure.
    Do you know what real pleasure is? A creative act.
    A pleasure without creativity is dead boring.

    Gianni Agnelli
  • Oh, I do a lot of things, I know is wrong
    Hope I'm forgiven before I'm gone
    It'll take a lot of prayers to save my soul
    And I got to hurry up before I grow too old.

    Joe Strummer & The Mescaleros
  • I think the publication selection procedure at the major journals has become methodologically more conservative, more given to preferring small wrinkles in existing analysis to genuinely new ideas. This conservative tendency also appears in the allocation of grants by government agencies and in faculty appointments and promotions.

    Kenneth Arrow