CARLO AMBROGIO FAVERO
FAVERO CARLO AMBROGIO, ALESSANDRO MELONE, ANDREA TAMONI
We propose a framework that reconciles drifting Treasury bond prices with stationary and predictable bond returns. Bond prices are drifting because they reflect the drift in average expected monetary policy rates over the life of the bonds. In our framework, deviations of bond prices from their drift should be stationary and can originate from term premia or temporary deviations from rational expectations in a behavioral framework. Empirically, modeling the drift in monetary policy rates using demographics and productivity trends, plus long-term in ation expectations, leads to stationary deviations of bond prices from their drift that predict future bond returns.
JEL codes: E43, E52, G12, J11.
Keywords: Monetary Policy Rule, Treasury Bond Yields, Term Structure, Drifting
Equilibrium Rate Drivers, Bond Return Predictability.
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Restarting the economy while saving lives under Covid-19
FAVERO CARLO AMBROGIO, ICHINO ANDREA, RUSTICHINI ALDO
We provide, calibrate and test a realistic model of the spread of SARS-Cov-2 in an
economy with different risks related to age and sectors. The model considers hospital
congestion and response of individuals adjusting their behavior to the virus' spread.
We measure precisely the size of these effects using real data for Italy on intensive care
capacity and mobility decisions; thus our claim is that the tradeoffs we estimate are
quantitatively, rather than qualitatively, approximately correct.
We characterize the policies of containment of the epidemic that are efficient with
respect to number of fatalities and GDP loss. Prudent policies of gradual return to
work may save many lives with limited economic costs, as long as they differentiate
by age group and risk sector. More careful behavior of individuals induced by the
perceived cost of infection may contribute to further reduce fatalities.
JEL-Code: I12, I18, D6, H84
Keywords: Covid-19,SARS-Cov-2 SEIR model, post lockdown policies.
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Factor Models with Drifting Prices
FAVERO CARLO AMBROGIO, ALESSANDRO MELONE, ANDREA TAMONI
This Revision June 2020
Standard factor models focus on returns and leave prices undetermined. Thus, we propose a novel (co-)integrated methodology to factor modeling based on both
prices and returns. Given a long-run relationship between the values of buy-and-hold portfolios and factors, we argue that a term-naturally labeled Equilibrium
Correction Term (ECT)-should be included when regressing returns on factors. We also advance to validate factor models by the existence of such a term. Empirically,
the ECT predicts equity portfolio returns. Furthermore, we find evidence for a common component in the asset-specic ECTs that is countercyclical and has
forecasting ability for the aggregate market.
Keywords: Long-Horizon Returns, Predictability, Mispricing, Factor Models, Equilibrium Correction.
JEL codes: C38, G11, G17.
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The Network Effects of Fiscal Adjustments
BRIGANTI E., FAVERO CA and M.KARAMYSHEVA
This Version July 2018
Nudging financial and demographic literacy: experimental evidence from an Italian Trade Union Pension Fund
BILLARI F., FAVERO CA and F.SAITA
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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The effect of Fiscal Consolidations: Theory and Evidence
ALESINA A., BARBIERO O., FAVERO CA, F.GIAVAZZI and M.PARADISI
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.
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Consumption, Wealth, the Elasticity of Intertemporal Substitution and Long-Run Stock Market Returns
Carlo A. Favero
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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
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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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