Credit policy,real exchange rate volatility and moral hazard

We extend the well-developed theoretical literature on unconventional credit policy from a closed economy to a small open economy. Consistent with the literature, we find that credit policy has positive effects on output and consumption by raising investment demand. In terms of expanding output, it is more effective to extend government credit to banks than to the goods-producing sector because for each unit of credit supplied to banks, banks - through leverage - can supply greater than one unit of intermediation to firms. We find the welfare implications are ambiguous and depend on the type of policy chosen. A policy of providing funds to goods-producing firms tends to be welfare-improving because it dampens the responses of all variables after a negative shock, including the real exchange rate. However, providing government assistance to the banking sector may be a costly policy because it encourages greater risk-taking on part of banks, leading to higher bank leverage. All else equal, this increases the volatility of the economy, raising the variances of consumption and of the real exchange rate, which is welfare-deteriorating. We interpret this as indicative of the problem of moral hazard associated with a policy of providing support to failing banks.     

Valuation Implications of Unconditional Accounting Conservatism: Evidence from Analysts' Target Prices

We examine whether financial analysts understand the valuation implications of unconditional accounting conservatism when forecasting target prices. While accounting conservatism affects reported earnings, conservatism per se does not have an effect on the present value of future cash flows. We examine whether analysts adjust for the effect of conservatism included in their earnings forecasts when using these forecasts to estimate target prices. We find that signed target price errors (actual minus forecast) have a significant positive association with the degree of conservatism in forward earnings, suggesting that target prices are biased due to accounting conservatism. Cross‐sectional analysis suggests that more sophisticated analysts and superior long‐term forecasters adjust for conservatism to a greater extent than other analysts. In additional analyses, we explore the mechanism through which conservatism leads to bias in target prices. We first show that analysts' earnings forecasts are negatively associated with the degree of conservatism; that is, analysts include the effect of unconditional conservatism in their earnings forecasts. Based on alternative earnings‐based valuation models that analysts may use, our evidence suggests that analysts fail to appropriately adjust their valuation multiple for the effect of conservatism included in their earnings forecasts when using these forecasts to derive target prices. As a consequence, we find that, for extreme changes in conservatism, the bias in analysts' target prices due to conservatism leads to a distortion of market prices. The evidence highlights the concern that analysts may not appreciate the valuation implications of conservative accounting which could inhibit price discovery.     

The Impact of Import Competition and Export Opportunities on the Dutch Labour Market

De Economist - We study the impact of rising Chinese and Eastern European import competition and export opportunities between 2001 and 2016 on the Dutch labour market. Both the participation of...     

The EU Elephant: Europe in the 2021 Dutch General Elections

Intereconomics - For the Netherlands, the single most important EU issue is the future of the eurozone.     

Thinking out of the box—by thinking in other boxes: a systematic review of interventions in early entrepreneurship vs. STEM education research

Management Review Quarterly - Scholars increasingly converge on the view that entrepreneurship education (EE) should start early during the formative years of individuals’ educational...     

The Trade Policy Jungle: A Survival Guide for Academic Economists

The rules of the trade policy arena differ from those in academia. How can an economic researcher survive, let alone thrive, in what may appear to be a trade policy jungle? The purpose of this paper is not just to offer guidance in this respect but also to think through the factors that determine the supply and demand for timely, relevant, policy‐relevant insights into commercial policy matters. Understanding the latter provides much of the rationale for the former. Advice follows analysis, as it should do. Economic researchers have certain advantages that they can make immediate use of in the jungle and some baggage that they would do well to shed.     

Do the Rich Save More? A New View Based on Intergenerational Transfers

Do richer people have higher saving rates? The short-run and long-run consumption functions have different answers to this question, which results in the “consumption puzzle” that was a focus of macroeconomic research in the 1950s and 1960s. In a recent empirical contribution, Dynan, Skinner, and Zeldes (2004) revive this old question and make this “consumption puzzle” more intriguing, by showing that the average propensity to consume decreases not only with current income but also with lifetime income. This paper provides a model that helps resolve this puzzle from an intergenerational perspective.     

Five hypotheses concerning the fate of the Singapore issues in the Doha Round

At the Cancún Ministerial Conference, the members ofthe World Trade Organization (WTO) disagreed on whether to launchnegotiations on multilateral disciplines concerning the fourareas of government policy collectively known as the ‘Singaporeissues’. This amounted to a decision not to expand theWTO's boundaries along these dimensions. In this paper, fivehypotheses concerning the treatment of the Singapore issuesby the WTO's membership are described and assessed. The implicationsof this assessment for the likelihood that, at some future date,similar proposals can be successfully advanced in the multilateraltrade arena are also discussed.