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DNB Working Papers
DNB Working Papers report on the results of research conducted by De Nederlandsche Bank (DNB). Started in June 2004, the series replaces earlier series like DNB Staff reports, DNB Research reports, PVK Reports and the PVK Studies.
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Show publications: [1-15] [16-30] [31-45] [46-60] [61-75] ...
| Title or theme | Date |
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239 - SEPA, Efficiency, and Payment Card CompetitionWilco Bolt and Heiko Schmiedel This paper analyzes the welfare implications of creating a Single Euro Payments Area. We study the effects of increased network compatibility and payment scale economies on consumer and merchant card fees and its impact on card usage. In particular, we model competition among debit cards and between debit and credit cards. We show that competitive pressures dampen merchant fees and increase total card acceptance. The paper argues that there is room for multilateral interchange fee arrangements to achieve optimal consumer and merchant fees, taking safety, income uncertainty, default risk, merchant's pricing power, and the avoided cost of cash at the retailers side into account. Consumers and merchants are likely to benefit the most from the creation of SEPA when sufficient payment card competition alleviates potential monopolistic tendencies. Key Words: SEPA, card network competition, optimal pricing, economic welfare JEL Codes: L11, G21, D53 Download: English (PDF: 1,1 Mb) | paper version: order |
January 2010 |
238 - Determinants of consumer financial risktaking:Evidence from deductible choiceJanko Gorter and Paul Schilp We analyze a clear-cut example of choice under uncertainty, namely deductible choice in the Dutch health insurance market. The unique institutional features of this market enable us to examine demand-side choices that only vary in their financial parameters. Using a rich dataset, we investigate the theoretical determinants of deductible choice. In line with expected-utility theory, we find that healthier, wealthier and more risk-tolerant consumers choose higher levels of deductibility. Consumer choice for financial risk is thus driven by various considerations, not only by risk type. Heterogeneity in risk preferences seems at least as important in explaining financial risk-taking. These results are not only relevant to insurance markets but to all markets where consumers decide on financial risk. JEL classification: D12, D81, G22 Key words: Financial Risk, Risk Tolerance, Adverse Selection, Deductible, Insurance Download: English (PDF: 776,3 Kb) | paper version: order |
January 2010 |
237 - On the Possibility of Credit Rationing in the Stiglitz-Weiss Model: A CommentItai Agur The model of Stiglitz and Weiss (American Economic Review, 1981, 71(3)) is the seminal analytical work on credit rationing. However, in a recent paper, Arnold and Riley (American Economic Review, 2009, 99(5)) claim that the distributional assumption on which that models main result depends cannot hold. This paper shows that Arnold and Rileys result is an outcome of their implicit assumption of a one-period Bertrand game between banks. In more realistic modes of bank competition, in which banks have some degree of monopoly power, Stiglitz and Weiss result can hold. Keywords: Credit rationing, Stiglitz-Weiss, Bank competition, Market Structure JEL Classification: D82, G21 Download: English (PDF: 783,1 Kb) | paper version: order |
January 2010 |
236 - The power of weatherChristian Huurman, Francesco Ravazzolo and Chen Zhou This paper examines the predictive power of weather for electricity prices in day- ahead markets in real time. We find that next-day weather forecasts improve the forecast accuracy of Scandinavian day-ahead electricity prices substantially in terms of point forecasts, suggesting that weather forecasts can price the weather premium. This improvement strengthens the confidence in the forecasting model, which results in high center-mass predictive densities. In density forecast, such a predictive density may not accommodate forecasting uncertainty well. Our density forecast analysis confirms this intuition by showing that incorporating weather forecasts in density forecasting does not deliver better density forecast performances. Key words: Electricity prices, weather forecasts, point and density forecasts, GARCH models. JEL Classification Code: C53, G15, Q40. Download: English (PDF: 1,2 Mb) | paper version: order |
January 2010 |
235- How Anchored Are Inflation Expectations in EMU Countries?Carin van der Cruijsen and Maria Demertzis Anchored inflation expectations help stabilize inflation. Previous results indicate that monetary policy has been effective in breaking the link between actual and expected inflation at the euro area level. In this paper we examine whether this is also true at the national level. We define the ‘disconnect’ between inflation and inflation expectations and then proceed to examine the extent to which this disconnect exists for a number of euro area countries. Our findings suggest that country-specific inflation experiences still affect national inflation expectations, and certainly more by comparison to the aggregate euro area level. EMU has therefore not made this link disappear at the national level. Keywords : Inflation expectations, monetary policy, EMU. J.E.L. codes : E52, E58. Download: English (PDF: 1,1 Mb) | paper version: order |
January 2010 |
233 - The pungent smell of “Red Herrings” Subsoil assets, rents, volatility and the resource curseFrederick van der Ploeg and Steven Poelhekke Brunnschweiler and Bulte (2008) provide cross-country evidence that the resource curse is a “red herring” once one corrects for the endogeneity of natural resource exports and allows resource abundance to have an effect on growth. Their results show that resource exports are no longer significant while the value of subsoil assets has a significant positive effect on growth. But the measure of subsoil assets that has been used is based on World Bank estimates of natural capital, which are valued as proportional to current rents, and thus also endogenous. Furthermore, their results may suffer from omitted variables bias, weakness of the instruments, violation of exclusion restrictions and misspecification error. Correcting for these issues and instrumenting resource exports with values of proven reserves at the beginning of the sample period; there is no evidence for the resource curse either and subsoil assets are no longer significant. However, we provide evidence that resource dependence leads to more volatility and thus indirectly to worse growth prospects. Keywords: resource curse, resource exports, resource rents, natural capital, subsoil assets, reserves, instrumental variables, volatility JEL code: C12, C21, C82, F43, O11, O41, Q32 14 Download: English (PDF: 1,1 Mb) | paper version: order |
January 2010 |
232 - Are banks too big to fail?Chen Zhou Abstract We consider three measures on the systemic importance of a financial institu- tion within a interconnected financial system. Based on the measures, we study the relation between the size of a financial institution and its systemic importance. From both theo- retical model and empirical analysis, we find that in analyzing the systemic risk posed by one financial institution to the system, size should not be considered as a proxy of systemic importance. In other words, the "too big to fail" argument is not always valid, and alter- native measures on systemic importance should be considered. We provide the estimation methodology of systemic importance measures under the multivariate Extreme Value Theory (EVT) framework. Keywords: Too big to fail; systemic risk; systemic importance; multivariate extreme value theory. JEL Classification Numbers: G21; C14. Download: English (PDF: 913,9 Kb) | paper version: order |
January 2010 |
231 - Financial Literacy and Retirement Planning in the NetherlandsMaarten van Rooij, Annamaria Lusardi and Rob Alessie The complexity of financial decisions households are faced with has increased to unprecedented levels. At the same time, recent research documents large differences in economic knowledge among households and indicates that household financial skills may be inadequate to cope with the increasing responsibility for making retirement decisions. In this paper, we examine the relationship between financial knowledge and retirement planning in the Netherlands. For this purpose, we have designed a customized module for the DNB (De Nederlandsche Bank) Household Survey. We identify a strong and positive association between financial knowledge and retirement planning. Using information on economics education when young, we show that the nexus of causality goes from literacy to planning rather than the other way around. Keywords : Thinking about Retirement, Knowledge of Finance and Economics, Financial Sophistication, Economics Schooling. JEL Classification : J26, D12. Download: English (PDF: 878,6 Kb) | paper version: order |
December 2009 |
230 - When liquidity risk becomes a macro-prudential issue: Empirical evidence of bank behaviourJan Willem van den End and Mostafa Tabbae This paper provides empirical evidence of behavioural responses by banks and their contribution to system-wide liquidity stress. Using firm-specific balance sheet data, we construct aggregate indicators of macro-prudential risk. Measures of size and herding show that balance sheet adjustments have been pro-cyclical in the crisis, while responses became increasingly dependent across banks and concentrated on certain market segments. Banks’ reactions were shaped by decreased risk tolerance and limited flexibility in risk management. Regression analysis confirms that their behaviour contributed to financial sector stress. The behavioural measures are useful tools for monetary and macro prudential analyses and can improve the micro foundations of financial stability models. Keywords: banking, financial stability, stress-tests, liquidity risk. JEL Codes: C15, E44, G21, G32. Download: English (PDF: 1,1 Mb) | paper version: order |
December 2009 |
229 - Anchors for Inflation ExpectationsMaria Demertzis, Massimililano Marcellino and Nicola Viegi We identify credible monetary policy with first, a disconnect between inflation and inflation expectations and second, the anchoring of the latter at the inflation target announced by the monetary authorities. We test empirically whether this is the case for a number of countries that have an explicit inflation target and therefore include the Euro Area. We find that for the last 10 year period, the two series are less dependent on each other and that announcing inflation targets help anchor expectations at the right level. Keywords : Inflation Targets, Measures of Credibility. JEL Classification: E52, E58 Download: English (PDF: 939,5 Kb) | paper version: order |
December 2009 |
228 - Stock Market Expectations of Dutch HouseholdsMichael Hurd, Maarten van Rooij and Joachim Winter Despite its importance for the analysis of life-cycle behavior and, in particular, retirement planning, stock ownership by private households is poorly understood. Among other approaches to investigate these puzzles, recent research has started to elicit private households’ expectations of stock market returns. This paper reports findings from a study that collected data over a two-year period both on households’ stock market expectations (subjective probabilities of gains or losses) and on whether they own stocks. We document substantial heterogeneity in financial market expectations. Expectations are correlated with stock ownership. Over the two years of our data, stock market prices increased, and expectations of future stock market price changes also increased, lending support to the view that expectations are influenced by recent stock gains or losses. Keywords : Subjective Probability, Stock Market Participation, Survey Research. JEL Classification : C42, D12, D84, G11. Download: English (PDF: 915,3 Kb) | paper version: order |
December 2009 |
227 - An institutional evaluation of pension funds and life insurance companiesDirk Broeders, An Chen and Birgit Koos This paper compares two different types of annuity providers, i.e. defined benefit pension funds and life insurance companies. One of the key differences is that the residual risk in pension funds is collectively borne by the beneficiaries and the sponsor while in the case of life insurers, it is borne by the external shareholders. This paper employs a contingent claim approach to evaluate the risk return trade-off for annuitants. For that, we take into account the differences in contract specifications and in regulatory regimes. Mean-variance analysis is conducted to determine annuity choices of consumers with different preferences. Using realistic parameters we find that under linear and quadratic utility, life insurance companies always dominate pension funds, while under other utility specifications this is only true for low default probabilities. Furthermore, we find that power utility consumers are indifferent if the long term default probability of pension funds exceeds that of life insurers by 2 to 4%. Keywords : Pension plans, barrier options, contingent claim approach, mean-variance analysis. JEL Classification : G11, G23. Download: English (PDF: 1,1 Mb) | paper version: order |
December 2009 |
226 - Communication in a monetary policy committee: a noteJan Marc Berk and Beata Bierut This paper models monetary policy decisions as being taken by an interacting group of heterogeneous policy makers, organized in a committee. Disclosing the premises on which an individual view on the interest rate is based is likely to provide value added in terms of the quality of the collective decision over-and-above simultaneous voting on interest rates. However, this is not generally true, as communication also involves a trade-off in the quality of views of committee members, which can lead to a reduction in the quality of collective decisions below the outcome achieved under simple majority voting. Still, communication is a relatively effective way to implement the ’knowledge pooling’ argument pro-collective decision-making, compared to expanding the size of the MPC. Keywords: committees, deliberations, correlated votes, simple majority voting. JEL classification: E58, D71, D78. Download: English (PDF: 914,2 Kb) | paper version: order |
November 2009 |
225 - Assessing Competition with the Panzar-Rosse Model: The Role of Scale, Costs, and EquilibriumJacob Bikker, Sherrill Shaffer and Laura Spierdijk The Panzar-Rosse test has been widely applied to assess competitive conduct, often in specifications controlling for firm scale or using a price equation. We show that neither a price equation nor a scaled revenue function yields a valid measure for competitive conduct. Moreover, even an unscaled revenue function generally requires additional information about costs and market equilibrium. Our theoretical findings are confirmed by an empirical analysis of competition in banking, using a sample covering more than 110,000 bank-year observations on almost 18,000 banks in 67 countries during 1986-2004. Keywords: Panzar-Rosse test, competition, firm size JEL classification: D40, L11. Download: English (PDF: 981,6 Kb) | paper version: order |
November 2009 |
224 - Being a Foreigner among Domestic Banks: Asset or Liability?Stijn Claessens and Neeltje van Horen Do foreign banks have an advantage operating abroad? The existing literature has come up with different answers. Studying the performance of foreign banks relative to domestic banks in a large number of countries between 1999 and 2006, we find that the answer importantly depends on a number of factors. Specifically, foreign banks tend to perform better when from a high income country and when competition in the host country is limited. They also perform better when they are large and rely more on deposits for funding. Foreign banks improve their performance over time, possibly as they adapt to the local institutional environment. Foreign banks from home countries geographical or cultural close to the host country perform better than distant foreign banks. Institutional familiarity, however, does not help (improve) foreign banks’ performance. These findings show that it is important to control for heterogeneity among foreign banks when studying their performance and help reconcile some contradictory results found in the literature. Keywords : foreign direct investment, international banking, information, institutions. JEL classification : F21, F23, G21. Download: English (PDF: 874,1 Kb) | paper version: order |
November 2009 |
Show publications: [1-15] [16-30] [31-45] [46-60] [61-75] ...
