- A new paper by Chen Zhou (jointly with John Einmahl (Tilburg University) and Laurens de Haan (Erasmus University Rotterdam)) entitled “Statistics of heteroscedastic extremes” has been accepted for publication in Journal of the Royal Statistical Society, Series B (JRSS-B). In this paper, the authors introduced a new set of tools to handle time variation in extreme events. The developed methodology can be applied to answer questions like "Are financial crises nowadays more frequent than before?" Empirical evidence confirms that extreme events in financial markets are indeed more likely during certain periods. As a side result, the paper delivers a preliminary tool to forecast risk measures, such as the Value-at-Risk, taking into account the trend in risk evolution.
- Tim de Vries wins 2014 Andreas Capital award for outstanding graduation projects on investment research. Tim de Vries (a former intern at DNB) has been presented with the 2014 Andreas Capital award for outstanding graduation projects on investment research for his Master’s thesis entitled: Sovereign Credit Ratings and Bond Yield Spreads in Europe; before and after Mario Draghi’s Speech.
- Andreas Capital is an international wealth management and fiduciary services company based in Larochette, Luxemburg. It sets itself apart from its peers by applying the methodologies used by large institutional investors to the management of private and family wealth. In its drive for innovation and enhancing the theory of investing, Andreas Capital has launched an initiative to encourage innovative investment research by young students. To this end, the Andreas Capital Group together with the University of Tilburg has established an annual award for the best Finance Master’s thesis on investment.
- The DNB Household Survey (DHS) has received the Data Seal of Approval (DSA) in August 2014. This international data label, established by a number of institutions committed to the long-term archiving of research data, indicates that the data is stored safely and in a sustainable way, and that they have been thoroughly checked for accuracy. The DSA is assigned by the DSA Board and renewed every year through a modification procedure. The Board consists of members from the following institutes: Alfred Wegener Institute (Germany), CINES (France), DANS (The Netherlands), ICPSR (USA), MPI for Psycholinguistics (The Netherlands), NESTOR (Germany) and UK Data Archive (United Kingdom).
- A paper by Anneke Kosse and Robert Vermeulen entitled "Migrants' choice of remittance channel: Do General payment habits play a role?" is forthcoming in World Development. The paper empirically investigates the determinants in migrants’ choice of payment channel when transferring money to relatives abroad. It analyses survey results on 501 migrants in the Netherlands, identifying five remittance channels: bank, money transfer operator, in-cash transfers via informal intermediaries, ATM withdrawals abroad and carrying cash abroad. The results show that education, costs, access and financial development in the recipient country are important determinants, while general cash preferences and internet banking usage play a limited role. Based on these findings, financial education, cost reduction and increasing financial inclusion may serve a valuable role to increase the use of formal channels.
Anneke Kosse and Robert Vermeulen (forthcoming), "Migrants' choice of remittance channel: Do General payment habits play a role?", World Development. (http://dx.doi.org/10.1016/j.worlddev.2014.05.002)
- The paper ‘Systematic tail risk’ by Maarten van Oordt and Chen Zhou has been accepted for publication in the Journal of Financial and Quantitative Analysis.
This article discusses the question whether historical price movements have a predictive value for the size of potential losses during a stock market crash. Our research shows that historical price movements may indeed provide an indication of which stocks will be hit relatively hard in a future market crash. Analysis of previous black days on the stock market may help to further improve estimates of potential losses. This answer is important for the merit of market risk models, which use historical price information to estimate potential losses during a stock market crash. If historical price information has no predictive value for the size of potential losses during a crash, these models have limited use for assessing market risks in market conditions where risk analysis and management are in fact crucially important.
Systematic tail risk, Maarten R.C. van Oordt and Chen Zhou, Journal of Financial and Quantitative Analysis, accepted. Link to DNB Working Paper 400
A new paper by Chen Zhou (jointly with Juan-Juan Cai (TU Delft), John Einmahl (Tilburg University) and Laurens de Haan (Erasmus University Rotterdam)) entitled “Estimation of the marginal expected shortfall: the mean when a related variable is extreme” has been accepted for publication in Journal of the Royal Statistical Society, Series B (JRSS-B). In this paper, the authors formalize the estimation procedure of a recently proposed systemic risk measure: the marginal expected shortfall (MES). Statistical properties on the estimator of MES are established.
JRSS-B is ranked as second in the catogery "Statistics and Probability" in ISI Journal Citation Reports 2012, with an impact factor 4.81, ahead of Econometrica (ranked third, with an impact factor 3.82).
- Chen Zhou was appointed by Tinbergen Institute as a research fellow since December 2013.
The appointment is based on TI's research assessment.
Please follow this link: http://www.tinbergen.nl/news/chen-zhou-research-fellow/
- A paper by Tijmen Daniëls (with Jutta Dönges and Frank Heinemann), entitled “crossing network versus dealer market”, was published in the European Economic Review. The paper models competition between a dealer market and an alternative trading system (ATS). New communication technologies and deregulation have fuelled the development of such systems.
A major question is how liquidity will be allocated and under which circumstances and for which sorts of assets, these alternative markets can emerge, co-exist with dealer markets or even replace them. This model explains why assets with large turnovers and low price volatility are likely to be traded on crossing networks, while less liquid assets are traded on dealer markets.
Tijmen R. Daniëls, Jutta Dönges and Frank Heinemann (2013), "Crossing Network versus Dealer Market", European Economic Review, 62, 41–57.
- A paper by Tijmen Daniëls (with Chris Basteck and Frank Heinemann), entitled “Characterising equilibrium selection in global games with strategic complementarities”, was published in the Journal of Economic Theory. It develops new and simple conditions to apply the well-known global game equililibrium selection technique.
Games with strategic complementarities, e.g. many bank run or currency crises models, often have multiple equilibria. Global games are widely used to predict behaviour in such models. Yet until now, most applications have been limited to binary-action models. This paper develops equilibrium prediction heuristics for many-action models that are useful in economic applications and yield novel insights. One example is a wholesale bank run model where introducing collateralised financing as a third action besides withdrawing and extending unsecured financing changes the predicted behaviour from the inefficient bank run equilibrium to that of unsecured reﬁnancing.
Christian Basteck, Tijmen R. Daniëls and Frank Heinemann (2013), "Characterising Equilibrium Selection in Global Games with Strategic Complementarities" Journal of Economic Theory, 148, 2620–37.
- In October 2013 Maarten van Oordt successfully defended his dissertation entitled 'On Extreme Events in Banking and Finance' at the Erasmus University in Rotterdam. His thesis supervisors were Prof.Dr. Job Swank (De Nederlandsche Bank) and Prof.Dr. Casper de Vries (Erasmus University Rotterdam). Dr. Chen Zhou (De Nederlandsche Bank) was his co-supervisor.
The dissertation contained six chapters: Two chapters about measuring systematic tail risk, two chapters about financial stability, and two chapters about extreme fluctuations in commodity prices. Prior to the defense ceremony, three chapters were accepted for publication by international journals, including the Journal of Banking & Finance and the Journal of Financial Intermediation.
- At the 8th Journal of Financial Stability 2013 Conference on Risk, Banking and Financial Stability, Dr Razvan Vlahu (De Nederlandsche Bank) won the Best Paper Award for his paper (joint work with Martin Brown and Stefan Trautmann): Understanding Contagious Bank Runs. In this paper, the authors examine through which channels, and under which information conditions, a panic-based depositor-run at one bank may trigger a depositor-run at another bank.
- At the 5th IFABS 2013 Conference in Nottingham Dr Chen Zhou (De Nederlandsche Bank) won the IFABS William F. Sharpe Best Paper Award for his paper together with Xiao Qin: Systemic Risk Allocation for Systems with A Small Number of Banks.
- A new paper by Maarten van Oordt entitled ‘Securitization and the dark side of diversification’ has been accepted for publication in the Journal of Financial Intermediation. Using a theoretical model, he examines potential new risk management strategies for financial institutions stemming from the creation of different tranches in securitizing loan portfolios.
One of the surprising findings is that – under certain conditions – it can be particularly unfavourable for financial stability if institutions diversify by exchanging relatively safe tranches. Whether this is the case depends in part on the degree of leverage of the financial institutions involved. Exchanging relatively safe tranches can be especially disadvantageous from a risk management perspective for highly leveraged institutions. If carried out judiciously, however, exchanging tranches may strongly advance the resilience of financial institutions.
Securitization and the dark side of diversification, Maarten R.C. van Oordt, Journal of Financial Intermediation, forthcoming.
- The article "Transparency of banking supervisors" by Franka Liedorp, Robert Mosch, Carin van der Cruijsen and Jakob de Haan has been accepted for publication in IMF Economic Review. The authors have constructed an index of transparency of banking supervisors that takes political, economic, procedural, policy and operational transparency into account. Based on a survey, the index is constructed for 24 banking supervisors. The average score is 8.4 points (out of 15), whereas the minimum is 5.5 and the maximum 12 points. On average, political transparency is the highest in the sample, while procedural transparency is the lowest. The analysis suggests that it is very hard to identify factors that can explain the large differences in supervisory transparency, suggesting that country-specific developments drive transparency.
Transparency of banking supervisors, Franka Liedorp, Robert Mosch, Carin van der Cruijsen and Jakob de Haan, IMF Economic Review, forthcoming.
- A new paper by Chen Zhou (jointly with Laurens de Haan and Casper de Vries, both from Erasmus University Rotterdam) entitled “The number of active bidders in Internet auctions” has been accepted for publication in the Journal of Economic Theory. In this paper, the authors investigate why there are only a few active bidders in Internet auctions even if the auctions attract numerous agents. By modeling the valuations of the active bidders as a specific record sequence, the paper shows that if the number of potential bidders, n, is large, the number of active bidders is approximately 2log(n). This result potentially explains the relative inactivity. In addition, if the arrival of potential bidders forms a non-homogeneous Poisson process due to a time preference for auctions that are soon to close, then the arrival process of the active bidders is approximately a Poisson arrival process.
The number of active bidders in Internet auctions, Laurens de Haan, Casper G. de Vries and Chen Zhou, Journal of Economic Theory, forthcoming.
- On 18 March 2013 DNB organizes a workshop entitled “The global financial crisis: What is the role of net and gross capital flows”.
The external stability of countries is traditionally assessed on the basis of net capital flows (or current account balances) and global current account imbalances are often mentioned as an important cause of the global financial crisis. The emergence of a global savings glut, due to excess savings in China and other emerging markets, led to large net capital flows towards advanced economies generating a global credit boom that then burst in 2007. Recent research, however, shows that the global credit boom was not so much fuelled by net inflows from emerging economies, but by gross inflows from financial sectors in advanced economies: the global banking glut. This suggests that gross capital flows also pose risks to financial stability, but these risks may be of a different size and nature and are not yet well understood.
The aim of this workshop is to bring together distinguished academics, policymakers and market participants to discuss the role of both net and gross capital flows in fuelling the pre-crisis credit boom and the policy lessons that can be drawn from this, both from an international macro-economic and from a banking perspective. Stijn Claessens (IMF), Stephen Cecchetti (BIS), Stefan Gerlach (CBOI), Linda Goldberg (NYFed), Klaas Knot (DNB), Frank Moss (ECB), Helene Rey (LBS), Hyun Song Shin (Princeton), Philip Suttle (IIF) and William White (OECD) will share their views on this topic during this one day workshop. Flyer Workshop
- Netspar grant for research about the pension preparation of small companies
Netspar is a network for ‘Studies on Pensions, Aging and Retirement’ that makes grants available for researchers. Recently Mauro Mastrogiacomo (Financial Stability division and VU University ) has received a grant aiming to study the retirement preparation of freelancers in small companies. Are they, for instance, willing to take part in a collective pension fund?
The grant is financed by Netspar and VU University. Also DNB (the Dutch Central Bank), AFM (Authority for the Financial Markets), Robeco, the Ministry of Economic and Social affairs and other institutions are involved in this research
The research project starts on March 1st. Mauro will be appointed for 1 day a week as researcher within EBO (the research unit of the DNB), that will also accommodate the PhD and the post-doc that will be hired on this grant.
- A new paper by Neeltje van Horen (joint with Ralph de Haas of the EBRD) entitled “Running for the exit? International bank lending during a financial crisis” has been accepted for publication in the Review of Financial Studies. Using data on syndicated lending the authors provide insights in how banks reduced cross-border lending after the collapse of Lehman Brothers. The paper shows that substantial heterogeneity existed in the extent to which different banks retrenched from the same country: there was no blanket ‘run for the exit’. Instead, banks reduced credit less to markets that were geographically close; where they had more lending experience; where they operated a subsidiary; and where they were integrated into a network of domestic co-lenders. These results show that deeper financial integration is associated with more stable cross-border credit during times of crisis.
- A new paper by Peter Wierts (joint with Roel Beetsma and Massimo Giuliodori from the University of Amsterdam and Benjamin Bluhm from Goethe University Frankfurt) entitled "From Budgetary Forecasts to Ex-Post Fiscal Data: Exploring the Evolution of Fiscal Forecast Errors in the EU" got accepted for Contemporary Economic Policy. In this paper, the authors investigate how ex post fiscal data differ from forecasts and nowcasts. The predictive content of fiscal plans is important, because it determines the reliability of the budget, while that of the nowcasts is important because these figures are an input for the next budget and may contain important signals about the fiscal stance. Findings show that, while fiscal plans are on average too optimistic relative to the nowcasts, nowcasts are overly optimistic relative to the ex-post figures. While most of the over optimism at the planning stage relative to the nowcast stage is driven by expenditures, revision errors are mainly caused by over optimism about revenues at the nowcast stage. Results also suggest that an improvement in the quality of institutions, whether measured by the tightness of national fiscal rules, the medium-term budgetary framework or budgetary transparency, increases the quality of budgetary reporting at both the planning and the nowcast stage. See link for the working paper version.
- A paper by Joris de Wind (joint with Wouter den Haan of the London School of Economics) entitled "Nonlinear and stable perturbation-based approximations" got accepted for publication in the Journal of Economic Dynamics and Control. In this paper, the authors propose a nonlinear perturbation-based approximation method that---unlike standard higher-order perturbation---does generate stable time paths for sure and does not have odd shapes. Moreover, the proposed approximation method avoids the drawbacks that hamper pruning, a procedure proposed by Kim, Kim, Schaumburg, and Sims (2008) to avoid the instability problems of standard higher-order perturbation. The authors find that both the proposed approximation as well as the pruning procedure give a good qualitative insight in the nonlinear aspects of the true solution, but---with a few exceptions---differ from the true solution in some quantitative aspects, especially in severe peaks and throughs.
- A new paper by Maarten van Rooij (joint with Annamaria Lusardi of the George Washington University and Rob Alessie of the University of Groningen) entitled "Financial Literacy, Retirement Planning, and Household Wealth" got accepted for publication in the Economic Journal. In this paper, the authors find of a strong positive association between financial literacy and net worth, even after controlling for many determinants of wealth. They explore two channels through which financial literacy facilitates wealth accumulation. First, financial knowledge increases the likelihood of investing in the stock market, allowing individuals to benefit from the equity premium. Second, financial literacy is positively related to retirement planning, and the development of a savings plan boosts wealth holdings.
- A new paper by Steven Poelhekke (with Rick van der Ploeg of the University of Oxford) entitled "Do Natural Resources Attract Non-Resource FDI?" has been accepted for publication at The Review of Economics and Statistics. Foreign direct investment (FDI) is an important driver of technology transfer, economic growth and development, but many resource-rich countries do not attract as much FDI as resource-poor countries. This paper shows for the first time, using detailed sector level data, that resource-rich countries attract resource FDI (which is no surprise), but attract less non-resource FDI. The net effect is even negative. This is a problem, because resource FDI is very capital intensive and we conjecture that it leads to fewer spill-over effects into the non-resource sectors of the host economy because it relies less on local subcontractors or suppliers. First, for those countries which were not a resource producer before, a resource discovery causes non-resource FDI to fall by 16% in the short run and by 68% in the long run. Second, for those countries which were already a resource producer, a doubling of resource rents induces a 12.4% fall in non-resource FDI. Third, on average, the contraction in non-resource FDI outweighs the boom in resource FDI. Aggregate FDI falls by 4% if the resource bonanza is doubled.
- A new paper by Neeltje van Horen (joint with Ralph De Haas of the EBRD) entitled "International Shock Transmission after the Lehman Brothers Collapse: Evidence from Syndicated Lending" got accepted for the American Economic Review Papers & Proceedings. In this paper the authors extend their earlier work in which they study the impact of the recent financial crisis on cross-border lending by large global banks. The paper shows that banks that had to write down sub-prime assets, refinance large amounts of long-term debt, and experienced sharp declines in their market-to-book ratio, transmitted these shocks across borders by curtailing their lending abroad. While shocked banks differentiated between countries in much the same way as less constrained banks, they restricted their lending more to small borrowers. (see: http://www.dnb.nl/en/binaries/De_Haas_Van_Horen_AER%20PP_article_web_tcm47-266782.pdf
- On 3-4 November 2011 we had organized our 14th Annual Research Conference in Amsterdam. This year's topic was 'Complex systems: Towards a better understanding of financial stability and crises'.
In the face of the financial crisis, many policymakers felt abandoned by conventional economic tools. Serious limitations of existing economic and financial models immediately became apparent. Arbitrage broke down, markets froze and market participants were gripped by panic. Macro models failed to predict the crisis and seemed unable to deal with extreme situations and out-of-equilibrium dynamics. Complex systems offer a new view on macroeconomic and financial phenomena where non-linear feedbacks and collective behavior play an important role.
The conference’s aim was to bring together researchers and policymakers to deepen our understanding of macroeconomic and financial systems by using methods for complex systems developed in other fields, such as physics, engineering and biology, and to identify more efficient approaches for financial authorities and central banks to pursue their macroeconomic and financial stability goals.
- 1 December 2010: DNB-researcher publishes in Journal of Financial Economics Maarten van Rooij (Economics & Research Division) has had his paper ‘Financial Literacy and Stock Market Participation’ (joint with Annamaria Lusardi and Rob Alessie) accepted by JFE. This study measures financial literacy and its relationship with stock market participation. The findings suggest that the majority of respondents display basic financial knowledge and have some grasp of concepts such as interest compounding, inflation, and the time value of money. However, very few go beyond these basic concepts; many respondents do not know the difference between bonds and stocks, the relationship between bond prices and interest rates, and the basics of risk diversification. Most important, the results show that financial literacy affects financial decision-making: Those with low literacy are much less likely to invest in stocks.
- 15-16 November 2010: Joint conference by De Nederlandsche Bank, European Central Bank and University of Groningen.
- 28 en 29 oktober 2010: 13th Annual Research Conference - Government support for the financial sector: what happens next?, De Nederlandsche Bank.
- 18-19 June: NBER Annual International Seminar on Macroeconomics (ISoM)
On Friday 18th and Saturday 19th of June, DNB hosted the National Bureau for Economic Research's annual International Seminar on Macroeconomics (ISoM). The NBER is the largest nonprofit economic research organization in the US; many of its adherents are leading economists in their field, and half of the US recipients of the Nobel Prize in Economics have been researchers at the NBER. The ISoM, which is held every year in Europe, is the opportunity for US and EU-based economists to get together and discuss recent work in a broad range of issues in Macroeconomics. Over two days, presenters and discussants exchanged views in the Grote Directievergaderzaal on such topics as the relationship between hours worked and productivity shocks, real-time monitoring of the global business cycle, the credibility of the ECB at its inception, the effects of fiscal policy on long-term rates in the presence of default risk, the difficulty of modelling Pigou cycles, the profitability of carry trades in recent times, and the effectiveness of fiscal policy when interest rates are very low. After such meaty food for thought, participants were treated to exquisite dining at Christophe's on Friday evening, and the Ship's Chandler on Saturday evening. The change of scenery offered by the guided tour in the historical center was enhanced by the throngs of Oranje supporters celebrating the victory of the national team in the first round of the World Cup. All in all, the conference was a success, and a number of participants expressed the wish to visit again. This promises a stream of excellent speakers in the years to come... See photos.
- March 3: New Visiting Scholar - Graciela Kaminsky
From 8-12 March, Graciela Kaminksy (George Washington University) will be visiting DNB as a visiting scholar. She will present a paper titled: Two Hundred Years of Financial Integration: Latin America since Independence. Graciela Kaminsky is professor of Economics and International Affairs at George Washington University and Research Associate at the National Bureau of Economic Research. She has published widely in leading academic journals. Her research covers a variety of topics in macroeconomics and international finance, including financial globalization, mutual fund’s investment strategy, currency and banking crises, contagion, credibility, and inflation stabilization policies.
- 12 February 2010: Erasmus University fellowship for Chen Zhou
Chen Zhou, researcher in the Economics and Research Division, also guest assistant professor in Erasmus University, received one of the four Erasmus University fellowships. The EUR fellowship (€ 200,000) is annually awarded by Erasmus University Rotterdam to four talented young scientific researchers.
Chen Zhou obtained the fellowship with his research proposal 'Systemic risk in the financial system: defined, measured and assessed'. The research proposal is designed to investigate various systemic risk measures and assess the contribution to systemic risk by individual financial institutions as well as macroeconomic shocks. Consequently, it provides policy advice for maintaining financial stability.
- 13 January 2010: Workshop on Concrete Macro-Prudential Tools
On 13 January, DNB will host a workshop on Concrete Macro-Prudential Tools, organized together with the IMF and the Duisenberg School of Finance. The workshop will bring together leading academics and senior policy makers. The focus will be on three main topics: (1) target for macro-prudential supervision: systemic risk, (2) the type and mandate of macro-prudential tools and (3) governance of macro-prudential policy councils. See presentations and the opening speech.
- 12 January 2010: New Visiting Scholar - Dwight Jaffee
From 12-15 January, Dwight Jaffee (Haas School of Business) will be visiting DNB as a visiting scholar. He will give a two-day course titled The U.S. Subprime Crisis: An Analysis of Proposed Banking and Financial Market Regulatory Reforms. Dwight Jaffee is the Willis Booth Professor of Banking, Finance and Real Estate in Haas School of Business, University of Califonia, Berkeley. He has written numerous articles. His current research focuses on the mortgage market and insurance supervision.
- 12 January 2010: Markus Brunnermeier (Princeton University) visits DNB
Markus Brunnermeier will present his paper titled 'A Macroeconomic Model with a Financial Sector' (written jointly with Yuliy Sannikov). He has done path-breaking research in a number of fields, including the relationship between financial intermediaries and macrovariables, global games, the relationship between funding and market liquidity, carry trades and currency crashes, and systemic risk. In the policy debate, he is mostly known for his contribution to the Geneva Report (The Fundamental Principles of Financial Regulation) and his analysis of the causes and dynamics of the crisis.
- 28th November 2009: DNB Researcher publishes in Journal of Monetary Economics
Vincent Sterk (Research Dept) has had his paper 'Credit Frictions and the Comovement between Durable and Non-durable Consumption' (DNB working paper no 210) accepted by the JME. This work analyses the relationship between credit frictions and macroeconomic fluctuation using a DSGE model, and finds that current attempts to model financial frictions cannot generate sufficiently volatile macro aggregates.
- 2nd November 2009: New Visiting Scholar - Simon van Norden
From 2-5 November, Simon van Norden (HEC Montreal) is at DNB as a visiting scholar. He will give a short course on data revision in macroeconomics and a research seminar.
- 26th October 2009: DNB Working Paper featured in Handelsblatt
A recent working paper (No 218) by Andreas Pick, Thomas Meyer and Michael Biggs on the relationship between credit impulses and GDP growth was discussed in an analysis piece in the German newspaper Handelsblatt.