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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 |
|---|---|
215 - An extended gravity model with substitution applied to international tradeJacob Bikker The traditional gravity model has been applied many times to international trade flows, especially in order to analyze trade creation and trade diversion. However, there are two fundamental objections to the model: it cannot describe substitutions between flows and it lacks a cogent theoretical foundation. A newly developed model, the Extended Gravity Model (EGM), overcomes these objections. The model shares characteristics of the models of Bergstrand (1985), Andersen and Van Wincoop (2003), and Redding and Scott (2003). An empirical test on a world-wide sample of 19 thousand 2005 trade flows strongly rejects the gravity model in favour of the EGM. The empirical analysis also shows that the gravity model widely overestimates the influence of the determinants of international trade, which is due to strong substitution between trade flows, reducing the initial (gravity model) effects. Substitution determines both trade creation and trade diversion. The EGM encompasses several models originating in regional economics, and can be applied usefully to a wide set of subjects. Keywords: bilateral trade, imports, exports, spatial allocation, trade creation, trade diversion, distance, market access, supplier access, multilateral resistance terms, remoteness indices. JEL Classification: F1, R12. Download: English (PDF: 887,1 Kb) | paper version: order |
July 2009 |
214 - Fiscal policy in Central and Eastern Europe with real time data: Cyclicality, inertia and the role of EU accessionJohn Lewis This paper evaluates the cyclicality, inertia and effect of EU accession on fiscal policy in Central and Eastern Europe using a real time dataset. Budget balances are found to react in a stabilising way to economic activity, and they are less inert than is typically found in Western Europe. There is clear evidence of a fiscal loosening in the run-up to EU accession. This began in 1999 in larger central European countries, often identified as “front-runners”. The other seven began loosening in 2001, after the Nice Treaty had been agreed and their EU entry confirmed. For both sets of countries, this loosening cumulatively amounts to some 3% of GDP. Keywords: Central and Eastern Europe, Fiscal Policy, Real Time Data, EU Accession. JEL Classification: E62 (Fiscal Policy), H6, (National Budget), E61 (Policy Objectives, Policy Designs and Consistency). Download: English (PDF: 956,9 Kb) | paper version: order |
July 2009 |
213 - Regulatory Competition and Bank Risk TakingItai Agur How damaging is competition between bank regulators? This paper develops a model in which both banks’ risk profile and their access to wholesale funding are endogenous. Regulators weigh not only welfare, but also the number of banks under their supervision. Simulations indicate that the gains from consolidating US regulation are moderate, roughly 0.5-1% of GDP. But retaining multiple regulators implies a choice for a financial system that is both more profitable and more fragile. The paper also shows how complex balance sheet items give rise to a gradual rise in bank risk, followed by a sudden interbank crisis. Keywords: regulatory competition, arbitrage, bank risk, liquidity risk, interbank market. JEL Classification: G21, G28. Download: English (PDF: 1,2 Mb) | paper version: order |
July 2009 |
212 - The communication policy of the European Central Bank: An overview of the first decadeJakob de Haan and David-Jan Jansen Since its inception, the European Central Bank (ECB) has regarded communication as an integral part of its monetary policy. This paper describes and evaluates ECB communications during the first decade of its operation . We conclude that, overall, ECB communication has contributed to the effectiveness of its monetary policy. Our review of the literature shows that ECB communications affect the level and volatility of financial prices - suggesting that private sector expectations reacted to ECB communication. In addition, there is evidence that communication has improved the predictability of interest rate decisions. JEL-codes : E44, E52, E58 Keywords : communication, European Central Bank, transparency, monetary policy Download: English (PDF: 944,6 Kb) | paper version: order |
June 2009 |
211 - Pension fund sophistication and investment policyJan de Dreu and Jacob Bikker This paper assesses the sophistication of pension funds’ investment policies using data on 748 Dutch pension funds during the 1999–2006 period. We develop three indicators of sophistication: gross rounding of investment choices, investments in alternative sophisticated asset classes and ‘home bias’. We find that pension funds’ strategic portfolio choices are often based on coarse and possibly less sophisticated approaches. Most pension funds, particularly the medium-sized and smaller ones, round strategic asset allocations to the nearest multiple of 5%, similar to age heaping in demographic and historical studies. Second, many pension funds invest little or nothing in alternative asset classes besides equities and bonds, resulting in limited asset diversification. Third, medium-sized and smaller pension funds favor regional investments and as such not fully employ the opportunities of international diversification. Finally, we show that pension funds using less sophisticated asset allocation rules tend to opt for investment strategies with a lower risk-return profile. KEYWORDS: Pension funds, investment policy, portfolio choice, gross rounding, heaping, diversification, home bias, alternative investments, behavioral finance. JEL CLASSIFICATION CODES: G11, G23. Download: English (PDF: 878,5 Kb) | paper version: order |
June 2009 |
210 - Credit Frictions and the Comovement between Durable and Non-durable ConsumptionVincent Sterk According to Monacelli (2009), a standard New-Keynesian model augmented with credit frictions solves the outstanding challenge to generate a joint decline of durable and non-durable consumption during a monetary tightening. This paper shows that his success in generating positive comovement between durables and non-durables is solely due to assumptions about price-stickiness in the durable goods sector and that the introduction of credit frictions actually makes the comovement problem harder to solve. JEL classiffication: E44, E52 Keywords: New-Keynesian models, financial frictions, general equilibrium Download: English (PDF: 973,3 Kb) | paper version: order |
June 2009 |
209 - Human Capital and Employment Growth in German Metropolitan Areas: New EvidenceSteven Poelhekke German metropolitan areas with more highly skilled workers became increasingly skilled between 1975 and 2003, and this has important implications for urban employment growth.Using for the first time German metropolitan areas instead of administrative regions we show that the share of college graduates affects growth by the same magnitude as it does in US MSAs. However, conventional estimators are biased upwards. Correcting for the endogeneity of initial employment and solving a common problem of under-identification shows that the effect is at least a third smaller and closer to 0.5% employment growth for a 10% increase in the concentration of skilled workers. The effect is robust to various controls across two data sets. We additionally question the view that aggregate productivity growth is solely due to college graduates. After distinguishing between six different skill levels we find positive growth effects of high school graduates with vocational training, especially if the local concentration of technical professionals is high. The concentration of non-technical university graduates becomes more important over time, but has less bearing on the marginal growth effects of other skill groups. City success may thus depend on the ‘right’ combination of skills as well as college graduates. Key words: human capital, skills, city employment growth, Germany, GMM estimation JEL Classiffication: C22, J2, O47, R0, R1 Download: English (PDF: 976,9 Kb) | paper version: order |
April 2009 |
208 - Monetary Transmission in three Central European Economies: Evidence from Time-Varying Coefficient Vector AutoregressionsZsolt Darvas This paper studies the transmission of monetary policy to macroeconomic variables in three new EU Member States in comparison with that in the euro area with structural time-varying coefficient vector autoregressions. In line with the Lucas Critique reduced-form models like standard VARs are not invariant to changes in policy regimes. The countries we study have experienced changes in monetary policy regimes and went through substantial structural changes, which call for the use of a time-varying parameter analysis. Our results indicate that in the euro area the impact on output of a monetary shock have decreased in time while in the new member states of the EU both decreases and increases can be observed. At the last observation of our sample, the second quarter of 2008, monetary policy was the most powerful in Poland and comparable in strength to that in the euro area, the least powerful responses were observed in Hungary while the Czech Republic lied in between. We explain these results by the credibility of monetary policy, openness and the share of foreign currency loans. JEL codes: C32, E50 Keywords: monetary transmission, time-varying coefficient vector autoregressions, Kalmanfilter Download: English (PDF: 1,3 Mb) | paper version: order |
April 2009 |
207 - Forecasting Random Walks under Drift InstabilityM. Hashem Pesaran and Andreas Pick This paper considers forecast averaging when the same model is used but estimation is carried out over different estimation windows. It develops theoretical results for random walks when their drift and/or volatility are subject to one or more structural breaks. It is shown that compared to using forecasts based on a single estimation window, averaging over estimation windows leads to a lower bias and to a lower root mean square forecast error for all but the smallest of breaks. Similar results are also obtained when observations are exponentially down-weighted, although in this case the performance of forecasts based on exponential down-weighting critically depends on the choice of the weighting coefficient. The forecasting techniques are applied to 20 weekly series of stock market futures and it is found that average forecasting methods in general perform better than using forecasts based on a single estimation window. Keywords Forecast combinations, averaging over estimation windows, exponentially down-weighting observations, structural breaks. JEL classifications C22, C53. Download: English (PDF: 1,1 Mb) | paper version: order |
March 2009 |
206 - The Volatility Curse: Revisiting the Paradox of PlentyFrederick van der Ploeg and Steven Poelhekke The volatility of unanticipated output growth in income per capita is detrimental to long-run development, controlling for initial income per capita, population growth, human capital, investment, openness and natural resource dependence. This effect is significant and robust over a wide range of specifications. We unravel the effects of volatility by opening the black box and conditioning the variance of growth shocks on several country characteristics. Natural resource dependence, physical and institutional barriers to trade and associated policy shocks increase volatility sharply and harm growth through this indirect channel. The robust indirect effect of natural resources through volatility trumps any direct effects on economic development, even if natural resource dependence is measured net of extraction costs. Financial development appears to mitigate the harmful causes of volatility. Our panel data estimation confirms our cross-country results, but we also offer evidence that well developed financial systems amplify the effect of short-term terms-of-trade volatility on macroeconomic volatility. Keywords: volatility, growth, natural resource curse, financial development. JEL code: C12, C21, C23, F43, G20, O11, O41, Q32. Download: English (PDF: 983,0 Kb) | paper version: order |
March 2009 |
205 - Can Open Capital Markets Help Avoid Currency Crises?Gus Garita and Chen Zhou By proposing a measure for cross-market rebalancing effects, we provide new insights into the different sources of currency crises. We address three interrelated questions: (i) How can we best capture contagion; (ii) Is the contagion of currency crisis a regional or global phenomenon?; and (iii) By controlling for “cross-market rebalancing” do other mechanisms like "financial openness" increase the probability of a currency crisis? We introduce the concept of conditional probability of joint failure (CPJF) to measure the linkages of currency crisis intra- and inter-regionally. From estimating this measure, we test for contagion and conclude that contagion only exists regionally. Furthermore, we construct a “cross-market rebalancing” variable based on the regional CPJF. By employing a probit model to compare our new variable with a regular contagion variable often used in literature, we conclude that our new variable captures contagion better; moreover, it also captures cross-market rebalancing effects. When we properly account for these effects, then financial openness helps to diminish the probability of a currency crisis even after controlling for the onset of a banking crisis. We also show that monetary policy geared towards price stability reduces the probability of a currency crisis. JEL Classification: C10, E44, F15, F36, F37. Key words: Crisis, Contagion, Cross-Market Rebalancing, Exchange Market Pressure, Extreme Value Theory, Financial Integration. Download: English (PDF: 987,4 Kb) | paper version: order |
February 2009 |
204 - The comovement between household loans and real activityWouter den Haan and Vincent Sterk In this paper, we analyze the business cycle behavior of home mortgages and consumer credit and investigate whether the observed changes. and in particular observed changes in the comovement between the loan variables and real activity. are likely to be caused by changes in financial markets. We find that there may have been such a role for changes in markets for consumer credit, but even before the financial crisis hit, the data do not support the hypothesis that changes in mortgage markets reduced the impact of economic shocks on real activity. Download: English (PDF: 1,1 Mb) | paper version: order |
February 2009 |
203 - The 'Wisdom of the Crowds' and Public PolicyMaria Demertzis Surowiecki (2004) argues that collective predictions are better than individual predictions and calls that the Wisdom of the Crowds. We use an analytical information model to demonstrate and explain this. Then we see how these two predictions are affected by better public information and show that while individual predictions always improve, collective ones do not. A social planner that relies on collective predictions to form policy may erroneously refrain from providing better information. We use two examples to show where this might be applicable. Keywords: Public information, social planner, ‘expert’ vs ‘lay’ crowds. JEL codes: D82, E52,E58. Download: English (PDF: 863,6 Kb) | paper version: order |
February 2009 |
202 - Forecasting the fragility of the banking and insurance sectorKerstin Bernoth and Andreas Pick This paper considers the issue of forecasting financial fragility of banks and insurances using a panel data set of performance indicators, namely distance-to-default, taking unobserved common factors into account. We show that common factors are important in the performance of banks and insurances, analyze the influences of a number of observable factors on banking and insurance performance, and evaluate the forecasts from our model. We find that taking unobserved common factors into account reduces the root mean square forecasts error of firm specific forecasts by up to 11% and of system forecasts by up to 29% relative to a model based only on observed variables. Estimates of the factor loadings suggest that the correlation of financial institutions has been relatively stable over the forecast period. JEL classification: C53, G21, G22 Keywords: Financial stability; financial linkages; banking; insurances; unobserved common factors; forecasting Download: English (PDF: 977,5 Kb) | paper version: order |
February 2009 |
201 - An Empirical assessment of reinsurance riskIman van Lelyveld, Franka Liedorp and Manuel Kampman We analyse the effect of failing reinsurance cover on the stability of Dutch insurers. As insurers often reinsure themselves with other (re)insurers, losses could spread contagiously through the sector. Using a unique and confidential data set on reinsurance exposures, we perform a scenario analysis to measure contagion risks. Based on current exposures, we find no evidence of systemic risk in the Netherlands, even if multiple reinsurance companies fail simultaneously. Next, we analyse to what extent the financial position of individual primary insurers is affected following a particular shock, considering solvency, capital and profit levels. The life insurance industry is hardly affected by reinsurance failures. The non-life industry, however, is vulnerable to a crisis in the European reinsurance market. We also find that members of smaller insurance groups are particularly exposed. Keywords : reinsurance, contagion, simulation. JEL Codes: G20, G22 Download: English (PDF: 903,2 Kb) | paper version: order |
February 2009 |
Show publications: [1-15] [16-30] [31-45] [46-60] [61-75] ...
