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Restarting the economy while saving lives under Covid-19


We provide, calibrate and test a realistic model of the spread of SARS-Cov-2 in an economy where the population has different age groups and sectors. The model takes into account factors that have proved to be essential in explaining features of the effect of the epidemic, in particular the constraint in the number of Intensive Care Units available in a region and the different response to the epidemic of individuals of different ages. 

We characterize the policies of containment of the epidemic that are efficient with respect to important outcomes such as number of fatalities and GDP loss.  

Our main finding is that prudent policies of gradual return to work even in the short period, may save many lives with limited economic costs, as long as a threshold  is not reached. Further attempts to reduce fatalities beyond this  threshold cause GDP losses that become extremely large. 

The policies that allow this safe return to productive activity are a combination of selection criteria of individual allowed to return to work on the basis of age and risk of the sector in which they are employed.

 JEL-Code: I12, I18, D6, H84

 Keywords: Covid-19,SARS-Cov-2 SEIR model, post lockdown policies.

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  • Last change 24/04/2020

    Asset Pricing vs Asset Expected Returning in Factor-Portfolio Models

    This Revision April 2021


    Standard factor-portfolio models focus on returns and leave prices undetermined. This approach ignores information contained in the time-series of asset prices, relevant for long-term investors and
    for detecting potential mispricing. To address this issue, we provide a new (co-)integrated methodology to factor modeling based on both prices and returns. Given a long-run relationship between
    the value of buy-and-hold portfolios in test assets and factors, we argue that a term naturally labeled as Equilibrium Correction Term (ECT)|should be included when regressing returns on
    factors. We also propose to validate factor models by the existence of such a term. Empirically, we show that the ECT predicts equity returns, both in-sample and out-of-sample.

    Keywords: Long-Horizon Returns, Predictability, Mispricing, Factor Models, Equilibrium Correction.
    JEL codes: C38, G11, G17.

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  • Last change 24/04/2020

    The Network Effects of Fiscal Adjustments

    This Version July 2018

    A large and increasing body of empirical evidence has established that fiscal adjustments based on government spending cuts are less costly in terms of losses in output growth than those based on tax increases.  We show that the propagation of fiscal adjustment plans through the industrial network can in theory explain this evidence and that it does so in practice for the US economy. The heterogenous effects of tax-based and expenditure-based adjustments might depend  on the difference in their propagation channels in the network of industries.  A tax-based adjustment plan is mainly a supply shock which
    propagates downstream (from supplier industries to customer industries) while an expenditure based plan is a  demand shock which propagates upstream (from customer industries to supplier industries). Empirical investigation of these channels on US data based on Spatial Vector Autoregressions reveals that tax based plans propagate through the network with an average output multiplier of close to -2, while the propagation of expenditure based plans does not lead to any statistically significant effect on growth. 
    Keywords: industrial networks, fiscal adjustment plans, output. 
    JEL codes : E60, E62.

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  • Last change 11/09/2018

    Nudging financial and demographic literacy: experimental evidence from an Italian Trade Union Pension Fund

    This Revision April 2017 

    Abstract: In this article, we present and test experimentally a low-cost, Internet-based, financial and demographic literacy program that we designed for implementation with the largest industrial pension fund in Italy. The program, Finlife (Financial Education and Planning for a Long Life) included 1) an instructional video and materials provided through the Internet; 2) an experimental design that explicitly allows to evaluate the impact of the instructional video and materials on financial and demographic literacy, as well as on short-term behavioral changes; 3) a follow-up to assess the stability of some of the experimental outcomes. Finlife was designed to be a low-cost and scalable approach to increase financial and demographic literacy, consistently with a ‘nudge’ philosophy. We show that Finlife delivered a substantially and statistically significant increase in financial and demographic literacy, as well as a push towards behaviors involving seeking more information on financial markets and choices related to financial planning.


    Keywords: pensions, financial literacy, demographic literacy, field experiment, Italian Trade Union Pension Fund

    JEL Classification: D91

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  • Last change 25/05/2017

    The effect of Fiscal Consolidations: Theory and Evidence

    This revision July 2018

    Abstract: We investigate the macroeconomic effects of fiscal consolidations based upon government spending cuts, transfers cuts and tax hikes. We extend a narrative dataset of fiscal consolidations, finding details on over 3500 measures. Government spending and transfer cuts are much less harmful than tax hikes. Standard New Keynesian models match our results when fiscal shocks are persistent. Wealth effects on aggregate demand mitigates the impact of a persistent spending cut. Static distortions caused by persistent tax hikes cause larger shifts in aggregate supply under sticky prices. This channel explains different sizes of multipliers found in fiscal stimuli compared to consolidation plans.

    JEL Codes: E62, H60.
    Key words: fiscal consolidations, fiscal multipliers, fiscal components, fiscal plans.


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  • Last change 30/08/2018

    Consumption, Wealth, the Elasticity of Intertemporal Substitution and Long-Run Stock Market Returns
    Carlo A. Favero


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  • Last change 05/12/2008

    The Predictive Power of the Yield Spread: further Evidence and a Structural Interpretation (Favero C.A., I.Kamynska and U.Soderstrom)
    Carlo A. Favero with I. Kaminska and U.Soderstrom

    (Jan 2005)

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  • Last change 15/01/2009

    Monetary-Fiscal Mix and Inflation Performance: Evidence from the U.S. (C.A. Favero and T.Monacelli)
    Carlo A. Favero with Tommaso Monacelli

    (revised January 2005)

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  • Last change 15/01/2009

    Last updated September 12, 2008