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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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English versions of DNB’s Working Papers are available for download in .pdf format (see below). On this site you can also order paper versions.
Show publications: [1-15] [16-30] [31-45] [46-60] [61-75] ...
| Title or theme | Date |
|---|---|
242 - Momentum or Contrarian Investment Strategies:Evidence from Dutch institutional investorsLeo de Haan and Jan Kakes This paper analyses investment strategies of three types of institutional investors – pension funds, life insurers and non-life insurers – over the period 1999-2005. We use balance sheet and cash flow data, including purchases and sales of equity, fixed income and real estate. We trace asset reallocations back to both active trading and revaluations and link investment decisions to firm-specific characteristics and macroeconomic variables. Overall, our results indicate that all three investor types tend to be contrarian traders, i.e. they buy past losers and sell past winners. Especially pension funds showed this behaviour in the most turbulent part of the sample – the crash of 2002 and early 2003 – implying that these institutions have a stabilising impact on financial markets when this is needed most. Life insurers tend to be contrarian traders when they have a high proportion of unit-linked policies, while non-life insurers are contrarian when they have a more risky business model. Keywords : Asset allocation, Investment strategy, Insurance companies, Pension funds. JEL Classification : G11, G12, G22. Download: English (PDF: 768,4 Kb) | paper version: order |
February 2010 |
241 - Inflation Expectations and Stability in an Overlapping Generations Experiment with Money CreationPeter Heemeijer, Cars Hommes, Joep Sonnemans and Jan Tuinstra We investigate how non-specialists form inflation expectations by running an experiment using a basic Overlapping Generations (OLG) model. The participants of the experiment are students of the University of Amsterdam, who predict inflation during 50 successive periods and are rewarded based on their accuracy. We include a central bank in the OLG model which increases the money supply at a constant rate. Participants are placed in separate OLG economies and are divided over two treatments: one with a "low" and one with a "high" money supply growth. We find that participants in the second treatment have substantially more difficulty in stabilizing inflation development by submitting accurate predictions than participants in the first treatment. However, when linear prediction rules are estimated on individual predictions, there is little difference between the two treatments. In both treatments, the most popular rules are Fundamentalist Expectations (predictions equal to the inflation sample mean) and Focal Expectations (predictions equal to a constant close to equilibrium). To verify whether participants adjust their prediction rules during the experiment, the estimated rules are checked for structural breaks. We find a surprisingly small number of structural breaks in both treatments. Keywords : Experimental economics, Expectations feedback, Inflation expectations, Price stability, Anchoring. JEL Classification : C, D, E1, E2, E4/5, E6, G, J. Download: English (PDF: 6,0 Mb) | paper version: order |
February 2010 |
240 - How well-behaved are higher-order perturbation solutions?Wouter J. den Haan and Joris de Wind They are not well-behaved. The main problem is that one cannot control the radius of convergence when using perturbation techniques. Just outside the radius of convergence, higher-order approximations can easily behave extremely badly, and even within the radius of convergence one can expect higher- but finite-order perturbation solutions to display problematic oscillations. In contrast, with projection methods one can control the radius of convergence. Pruning, the solution proposed to deal with explosive behavior of higher-order perturbation solutions, is shown to be highly distortionary. A simple alternative based on short samples and rejection sampling is proposed and shown to be much less distortive. Keywords: numerical solutions, perturbations, penalty functions, borrowing constraints. JEL Classification: C63, D52. Download: English (PDF: 1,2 Mb) | paper version: order |
January 2010 |
239 - SEPA, Efficiency, and Payment Card CompetitionWilko 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. Keywords: SEPA, card network competition, optimal pricing, economic welfare. JEL Classification: 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. Keywords : Financial Risk, Risk Tolerance, Adverse Selection, Deductible, Insurance. JEL Classification : D12, D81, G22. 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 model’s main result depends cannot hold. This paper shows that Arnold and Riley’s 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’s 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. Keywords: 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. JEL Classification: E52, E58. Download: English (PDF: 1,1 Mb) | paper version: order |
January 2010 |
234 - Is Contagion in the Eye of the Beholder?Mark Mink Empirical research on contagion between international stock markets generally focuses on market returns converted to US dollars, as this would be consistent with the perspective of an international investor. This note argues that such a conversion is inappropriate, since only returns denominated in local currencies accurately reflect supply and demand in national stock markets. When these returns are converted to a common currency they are also affected by exchange rate fluctuations, which leads to biased results as is illustrated using an example from the sub-prime crisis. Key words: Stock Market Contagion, Exchange Rates, Sub-prime Crisis. JEL Classification: F3, G11, G15. Download: English (PDF: 189,6 Kb) | 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 Classification: C12, C21, C82, F43, O11, O41, Q32. Download: English (PDF: 1,1 Mb) | paper version: order |
January 2010 |
232 - Are banks too big to fail?Chen Zhou We consider three measures on the systemic importance of a financial institution 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 theoretical 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 alternative 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: 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 Classification: 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 |
Show publications: [1-15] [16-30] [31-45] [46-60] [61-75] ...
