Sergio Rebelo is the Tokai Bank Distinguished Professor of International Finance at the Kellogg School of Management, where he has served as Chair of the Finance Department.

Prior to joining Kellogg Rebelo taught at the University of Rochester and at the Portuguese Catholic University.

He is a fellow of the Econometric Society, the National Bureau of Economic Research,and of the Center for Economic Policy Research. He has been a member of the editorial board of various academic journals, including the American Economic Review, the European Economic Review, the Journal of Monetary Economics, and the Journal of Economic Growth.

He has won numerous teaching awards at the Kellogg School of Management, including the Executive Masters Program Outstanding Professor Award and the Professor of the Year Award.

Morningstar: What is in this economic stimulus package that will help my business?

Sergio Rebelo: The stimulus package includes a variety of measures that are likely to produce short-run increases in the demand for the energy and construction sectors. There are also provisions aimed at boosting investment. These provisions allow businesses to deduct investment and R&D spending from taxes at a more rapid pace than usual.

Morningstar: What is in this economic stimulus package for me? As an investor? As a consumer?

Sergio Rebelo: There is a tax credit for first-time homebuyers as well as a deduction for sales and excise taxes associated with new car purchases.

Apart from the stimulus package, there are new opportunities for investors provided by the new Term Asset-Backed Securities Loan Facility (TALF). Through this program the Fed will provide subsidized financing and downside protection to investors who acquire new securities backed by auto loans, credit card balances, student loans, and small-business loans.

Even aside from government programs, there will be a lot of opportunities for consumers in the form of lower prices. The ratio of inventory to sales increased rapidly in the last quarter of 2008. For this reason, companies are likely to continue to use price discounts to try to clean out their shelves. There are also opportunities for investors who have secure jobs, a reasonably long horizon (say, ten years) and who are willing to take some risk. Price-earnings ratios have declined dramatically not just in the United States but across the globe. Stock markets are always hard to predict. But lower price-earnings ratios have historically been followed by higher rates of return. Home prices are falling rapidly creating a lot of opportunities for new home buyers at a time when many mortgage rates are relatively low.

Morningstar: Will new scrutiny on derivative instruments stifle profitability for asset managers or investment bankers?

Sergio Rebelo: There is worry that regulators will limit the use of instruments and techniques that are useful to asset managers and investment bankers. But I think that two important changes in the use of derivative instruments will be driven by participants in financial markets, not by regulators. First, concerns with counterparty risk are likely to lead to a reallocation of trade from the over-the-counter market to organized exchanges such as the Chicago Mercantile Exchange. Second, a desire for more transparency is likely to increase the use of simple, plain-vanilla derivative products and strategies that are easy to assess and understand.

Morningstar: What additional measures do you expect the US Treasury must take beyond this stimulus package?

Sergio Rebelo: We know from the experience of other countries that banking crises require large government outlays, on the order of 25 percent of GDP. This experience suggests that the U.S. Treasury is likely to have to devote more resources to stabilize the financial system. Some of these outlays will, of course, later be recovered so the cost to the taxpayer is likely to be much lower than the initial outlay.

Morningstar: What metrics should managers and investors look at for signs of impending recovery or continued weakness?

Sergio Rebelo: Economists use 'leading indicators,' variables that generally move ahead of the cycle, to try to forecast where the economy is headed. Some of these variables, like housing starts, building permits, the money supply or interest rate spreads will not be useful this time around. These indicators are contaminated by the ongoing structural adjustments in the housing market and the unusual actions taken by the Federal Reserve to stabilize the financial system. Two leading indicators that are likely to continue to be valid are new orders of capital goods and new orders of consumer goods. Improvements in these variables will signal that we are getting out of the recession. Similarly, the stock market generally recovers ahead of the economy. Labor market conditions are often a lagging indicator, so don't look at the number of jobs gained and lost to time the turnaround of the economy.

Morningstar: Is this a silver lining in this economic environment?

Sergio Rebelo: An obvious silver lining is the decline in commodity prices (no pun intended). The large decline in oil prices, from roughly 140 dollars per barrel in July to values close to 40 dollars, has greatly benefited the U.S. household (the average household spends roughly
10 percent of its consumption budget directly on gasoline and utilities).

Currencies in emerging markets have depreciated substantially relative to the U.S. dollar. These depreciations have created significant opportunities for companies that want to expand into these markets.