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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: ... [76-90] [91-105] [106-120] [121-135] [136-150] ...
| Title or theme | Date |
|---|---|
185 - Has the Clarity of Humphrey-Hawkins Testimonies Affected Volatility in Financial Markets?David-Jan Jansen By applying readability statistics to the Humphrey-Hawkins testimonies given by the Federal Reserve Chairman, I test whether the clarity of central bank communication affects volatility in financial markets. There are three key results. First, when clarity matters, the results are unequivocal: clarity diminishes volatility. Second, clarity of communication matters mostly for volatility of medium-term interest rates. Third, the effects of clarity vary over time. Clarity mattered especially, but not exclusively during Alan Greenspan's term at the Federal Reserve. Overall, the analysis shows the importance of transparent communication on monetary policy. JEL classifications: E44, E52, E58. Keywords: central bank communication, transparency, readability, financial markets, volatility Download: English (PDF: 1,0 Mb) | paper version: order |
November 2008 |
184 - Monetary Policy Committees: meetings and outcomesJan Marc Berk en Beata Bierut Monetary Policy Committees differ in the way the interest rate proposal is prepared and presented in the policy meeting. In this paper we show analytically how different arrangements could affect the voting behaviour of individual MPC members and therefore policy outcomes. We then apply our results to the Bank of England and the Federal Reserve. A general finding is that when MPC members are not too diverse in terms of expertise and experience, policy discussions should not be based on pre-prepared policy options. Instead, interest rate proposals should arise endogenously as a majority of views expressed by the members, as is the case at the Bank of England and appears to be the case in the FOMC under Chairman Bernanke. (JEL E58, D71, D78) Keywords: monetary policy committee, voting, Bank of England, Federal Open Market Committee Download: English (PDF: 1,0 Mb) | paper version: order |
November 2008 |
183 - Pension regulation and the market value of pension liabilities - a contingent claims analysis using Parisian optionsDirk Broeders and An Chen We analyze the market-consistent valuation of pension liabilities in a contingent claim framework whereby a knock-out barrier feature is applied to capture early regulatory closure of a pension plan. We investigate two cases which we call “immediate closure procedure" and “delayed closure procedure". In an immediate closure procedure, when the assets value hits the regulatory boundary, the pension plan is terminated immediately. Whereas in a delayed closure procedure, a grace period is given to the pension fund plan for reorganization and recovery before premature closure is executed. The framework is then used to construct fair pension deals. Keywords: Pension funds; DB and DC pension plans, barrier options, Parisian barrier options. JEL: G11, G23 Download: English (PDF: 971,9 Kb) | paper version: order |
October 2008 |
182 - Are Product and Labour Market Reforms Mutually Reinforcing?Paul Cavelaars This paper analyses the relationship between product market competition and labour market institutions in a general equilibrium context. It concludes that an increase in product market competition, enhanced .exibility of labour supply, social security reform and a reduction in union bargaining power are mutually re-inforcing (in terms of their employment impact) in some, but not all cases. This stresses the need for an extremely careful design of such reforms. JEL codes: E24, E52, J50. Key words: labour market regulation, wage bargaining. Download: English (PDF: 864,8 Kb) | paper version: order |
September 2008 |
181 - Competition, bargaining power and pricing in two-sided marketsWilko Bolt en Kimmo Soramäki We develop a model of two-sided markets that illustrates the role of bargaining power between the two sides of the market. We are interested in the profit maximizing usage fees set by identical duopolistic platforms which engage in homogeneous, Bertrand-type competition. We find that for a sufficiently low marginal cost duopolistic two-sided competition reduces to a “grab-the-dollar” game with two asymmetric (pure) Nash equilibria. These equilibria are characterized by highly skewed prices, in which the side with all the bargaining power pays a minimum price. The other side of the market is used for cross-subsidization and is charged a high price. Compared to the monopoly outcome, competition lowers the total price charged to both sides, although the seller’s equilibrium price may exceed the monopoly price. Both platforms enjoy excess profits. Key Words : platform competition, bargaining power, asymmetric equilibria, skewed pricing JEL Classification Code: L10, L13 Download: English (PDF: 978,2 Kb) | paper version: order |
September 2008 |
180 - Minimum Funding Ratios for Defined-Benefit Pension FundsArjen Siegmann We compute minimum funding ratios for Defined Benefit (DB) plans based on the expected utility that can be achieved in a Defined Contribution (DC) pension scheme. Using Monte Carlo simulation, expected utility is computed for three different specifications of utility: power utility, mean-shortfall and mean-downside deviation. Depending on risk aversion and the level of sophistication assumed for the DC-scheme, minimum acceptable funding ratios are between 0.87 and 1.20. If the DC-scheme is constrained to a fixed-contribution setup, minimum funding ratios are between 0.87 and 0.98. Furthermore, the attractiveness of the DB plan increases with the expected equity premium and the fraction invested in stocks. We conclude that the expected value of intergenerational solidarity, implicit in the DB pension fund, can be large. Given a pension fund with a funding ratio of 1.30, a participant in a DC plan has to pay a 2.7 to 6.1%-point higher contribution to achieve equal expected utility. Keywords: defined-benefit pension fund, individual efficiency, defined-contribution Download: English (PDF: 868,1 Kb) | paper version: order |
September 2008 |
179 - Preferences for redistribution in the NetherlandsJan Kakes and Jasper de Winter We investigate the determinants of Dutch households’ preferences for income redistribution, using survey data. Our results show that support for redistributive policies is related to self-interest, exposure to misfortune and risk-aversion. In addition, people who believe that prosperity is primarily due to luck rather than hard work tend to favour redistribution, indicating that equal opportunities are considered important. Interestingly, support for redistributive policies is positively related to education, while the impact of age is ambiguous. This is an important outcome, as it implies that globalisation and skill-biased technological progress may put less pressure on the Dutch social security system than previously assumed. JEL Codes: D31, D63, H23, H55, P16. Keywords: Redistribution, social security. Download: English (PDF: 901,5 Kb) | paper version: order |
September 2008 |
178 - Optimal Central Bank TransparencyCarin A.B. van der Cruijsen, Sylvester C.W. Eijffinger and Lex H. Hoogduin Should central banks increase their degree of transparency any further? We show that there is likely to be an optimal intermediate degree of central bank transparency. Up to this optimum more transparency is desirable: it improves the quality of private sector inflation forecasts. But beyond the optimum people might: (1) start to attach too much weight to the conditionality of their forecasts, and/or (2) get confused by the large and increasing amount of information they receive. This deteriorates the (perceived) quality of private sector inflation forecasts. Inflation then is set in a more backward looking manner resulting in higher inflation persistence. By using a panel data set on the transparency of 100 central banks we find empirical support for an optimal intermediate degree of transparency at which inflation persistence is minimized. Our results indicate that while there are central banks that would benefit from further transparency increases, some might already have reached the limit. JEL codes: E31, E52, E58 Keywords: central bank transparency, monetary policy, inflation persistence. Download: English (PDF: 1.020,1 Kb) | paper version: order |
July 2008 |
177 - Towards a Network Description of Interbank Payment FlowsMarc Pröpper, Iman van Lelyveld and Ronald Heijmans We present the application of network theory to the Dutch payment system with specific attention to systemic stability. The network nodes comprise of domestic banks, large international banks and TARGET countries, the links are established by payments between the nodes. Traditional measures (transactions, values) first show payments are relatively well behaved through time and that the system does not contain a group of significant structural net receivers or payers among the participant institutions. Structural circular flows do, however, exist in the system, most prominently a large circular net flow between TARGET countries. Analysis of the properties of prominent network measures over time shows that fast network development takes place in the early phase of network formation of about one hour and slower development afterwards. The payment network is small (in actual nodes and links), compact (in path length and eccentricity) and sparse (in connectivity) for all time periods. In the long run, a mere 12% of the possible number of interbank connections is ever used and banks are on average only 2 steps apart. Relations in the network tend to be reciprocal. Our results also indicate that the network is susceptible to directed attacks. In a final section we show that the recent ‘sub prime’ turmoil in credit markets has not materially affected the network structure. JEL codes: G1, E5 Key words: network, topology, interbank, payment, systemic risk, financial stability Download: English (PDF: 963,0 Kb) | paper version: order |
May 2008 |
176 - Market Thinness, List Price Revisions and Time to Sell: Evidence from a large-scale housing datasetMarco Hoeberichts, Maarten van Rooij and Arjen Siegmann This paper uses a large dataset, covering more than 70% of the Dutch housing market, to analyze the relationship between market thinness, price setting behavior and time to sell. Our findings confirm the typical result that overpricing increases the time on market. In addition, we find evidence of quicker list price reductions suggesting that overpricing is part of a strategy to search for the opportunity of high revenues and to learn about the market. Moreover, we are able to confirm the theory put forward by Lazear (1986) on the relation between atypical goods and the speed of price adjustments. Sellers of atypical houses are more uncertain about the price buyers want to pay and take time to learn about the market, thereby increasing the expected time on market and the time to price revisions. Market liquidity has a positive, i.e. shortening, effect on the time to sale and leads to quicker price revisions due to the increased opportunities for learning. Keywords: market liquidity, pricing strategies, marketing time, overpricing, housing JEL-Classification: R31, D83, D12, C41, E30 Download: English (PDF: 823,6 Kb) | paper version: order |
May 2008 |
175 - Liquidity Stress-Tester: A macro model for stress-testing banks' liquidity riskJan Willem van den End This paper presents a macro stress-testing model for market and funding liquidity risks of banks, which have been main drivers of the recent financial crisis. The model takes into account the first and second round (feedback) effects of shocks, induced by behavioural reactions of heterogeneous banks, and idiosyncratic reputation effects. The impact on liquidity risk is simulated by a Monte Carlo approach. This generates distributions of liquidity buffers for each scenario round, including the probability of a liquidity shortfall. An application to Dutch banks illustrates that the second round effects have more impact than the first round effects and hit all types of banks, indicative of systemic risk. This lends support policy initiatives to enhance banks’ liquidity buffers and liquidity risk management, which could also contribute to prevent financial stability risks. Key words: banking, financial stability, stress-tests, liquidity risk JEL Codes: C15, E44, G21, G32 Download: English (PDF: 966,6 Kb) | paper version: order |
May 2008 |
174 - Do financial conglomerates create or destroy value? Evidence for the EUIman van Lelyveld en Klaas Knot There is an ongoing debate whether firm focus creates or destroys shareholder value. Earlier literature has shown significant diversification discounts: firms that engage in multiple activities are valued less. Various factors are important in the size of the discount, for example crosssubsidization and agency problems. The extant literature, however, generally focuses on nonfinancial firms or traditional banking (cf Laeven and Levine (2007) and Schmid and Walter (2006)). Our paper focuses specifically on the valuation of bank-insurance conglomerates. We find no universal diversification discount but significant variability. Size, complexity and risk seem to be important determinants. JEL codes: G2, G3, L2 Key words: financial conglomerates, firm valuation Download: English (PDF: 940,2 Kb) | paper version: order |
May 2008 |
173 - Multivariate Feller conditions in term structure models: Why do(n't) we care?Peter Spreij, Enno Veerman and Peter Vlaar In this paper, the relevance of the Feller conditions in discrete time macro-finance term structure models is investigated. The Feller conditions are usually imposed on a continuous time multivariate square root process to ensure that the roots have nonnegative arguments. For a discrete time approximate model, the Feller conditions do not give this guarantee. Moreover, in a macro-finance context the restrictions imposed might be economically unappealing. At the same time, it has also been observed that even without the Feller conditions imposed, for a practically relevant term structure model, negative arguments rarely occur. Using models estimated on German data, we compare the yields implied by (approximate) analytic exponentially affine expressions to those obtained through Monte Carlo simulations of very high numbers of sample paths. It turns out that the differences are rarely statistically significant, whether the Feller conditions are imposed or not. Moreover, economically the differences are negligible, as they are always below one basis point. Keywords:macro-finance models, affine term structure model, expected inflation, ex-ante real short rate, Monte Carlo simulations JEL codes: E34, G13 Mathematics Subject Classification: 62P05, 62P20, 91B28 Download: English (PDF: 1,1 Mb) | paper version: order |
April 2008 |
172 - Location Decisions of Foreign Banks and Institutional Competitive AdvantageStijn Claessens and Neeltje van Horen Familiarity with working in a specific institutional environment compared to its competitors can provide a firm with a competitive advantage, making it invest in specific host countries. We examine whether this notion of institutional competitive advantage drives banks to seek out specific markets. Using detailed, bilateral data of bank ownership for a large number of countries over 1995-2006 and using a first-difference model, we find that institutional competitive advantage importantly drives banks’ location decisions. Results are robust to different samples and model specifications, various econometric techniques and alternative measures of institutional quality. This finding has some policy implications, including on the increased cross-border banking among developing countries. JEL Classification Codes: F21, F23, G21,Keywords: foreign direct investment, international banking, institutions. Download: English (PDF: 948,5 Kb) | paper version: order |
April 2008 |
171 - Impact of bank competition on the interest rate pass-through in the euro areaM. van leuvensteijn, C. Kok Sørensen, J.A. Bikker and A.A.R.J.M. van Rixtel This paper analyses the impact of loan market competition on the interest rates applied by euro areabanks to loans and deposits during the 1994-2004 period, using a novel measure of competition calledthe Boone indicator. We find evidence that stronger competition implies significantly lower spreadsbetween bank and market interest rates for most loan market products, in line with expectations. Usingan error correction model (ECM) approach to measure the effect of competition on the pass-through of market rates to bank interest rates, we likewise find that banks tend to price their loans more inaccordance with the market in countries where competitive pressures are stronger. Further, where loan market competition is stronger, we observelarger bank spreads (implying lower bank interest rates) oncurrent account andtime deposits. This would suggest that the competitive pressure is heavier in the loan market than in the deposit markets, so that banks under competition compensate for theirreduction in loan market income by lowering their deposit rates. We observe also that bank interestrates in more competitive markets respond more strongly to changes in market interest rates. Thesefindings have important monetary policy implications, as they suggest that measures to enhancecompetition in the European banking sector will tend to render the monetary policy transmissionmechanism more effective. JEL codes: D4, E50, G21, L10; Key words: Monetary transmission, banks, retail rates, competition, panel data; Download: English (PDF: 936,8 Kb) | paper version: order |
April 2008 |
Show publications: ... [76-90] [91-105] [106-120] [121-135] [136-150] ...
