The Bank Lending Channel in the Netherlands: The Impact of Monetary Policy on Households and Firms

This paper presents empirical evidence of the existence of a bank lending channel in the Netherlands by analyzing the responses of different borrower groups to a contraction of monetary policy. It is found that corporate loans are depressed only after a lapse of over a year, whereas household loans decrease almost instantly due to an interest rate rise. However, since the latter reaction is not accompanied by a fall in consumer expenditure, the bank lending channel is probably not very important for the transmission of monetary policy in the Netherlands. It appears that households, as well as banks and firms, tend to buffer monetary policy shocks through adjustments in liquid financial instruments.We would like to thank the managing editor, two anonymous referees as well as R. Lensink (University of Groningen), E. Sterken (University of Groningen), P. Vermeulen (ECB) for their comments, and J. Kakes (the Netherlands Bank) for his research assistance     

Presidential popularity and reputation

Summary This paper reports on the results of an empirical study of relationships between the popularity of US presidents and economic variables. Traditionally, these relationships are based on the hypothesis that voters hold the incumbent President responsible for the economic situation. We derive an alternative specification of popularity, based on the hypothesis that political parties perform better on different issues. Empirical evidence turns out to be strongly in favour of our hypothesis. Our findings have important implications for studies on government behaviour in which it is assumed that one of the objectives of administrations is to maximise votes.I am indebted to J.C. Siebrand, A.S. Brandsma, G.E. Hebbink, N. van der Windt and an anonymous referee for many useful suggestions.     

THEORIES OF THE BANKING FIRM: A REVIEW OF THE LITERATURE*

This paper reviews the theoretical literature on the banking firm. Apart from studies dealing purely with the reasons why banks exist, the survey is fairly comprehensive in that it covers the main categories of microeconomic models of bank behaviour. The emphasis is on recent work, which also includes modern, information-based, theories of loan commitments, credit rationing, collateral and the bank-client relationship.     

Polarization,Political Instability and Active Learning*

In a multiperiod setting, decision‐makers can learn about the consequences of their decisions through experimentation. We examine how polarization and political instability affect learning through experimentation. We distinguish two cases: (i) the decision to be made is not salient and does not affect the outcome of subsequent elections (exogenous elections) and (ii) the decision is salient and the election outcome depends on it (endogenous elections). It is shown that while the possibility of learning increases activism, the existence of political instability distorts learning. Furthermore, we demonstrate that, when elections are exogenous, polarization between political parties does not always decrease active learning.     

The lean service machine

Jefferson Pilot Financial, a life insurance and annuities firm, like many U.S. service companies at the end of the 1990s was looking for new ways to grow. Its top managers recognized that JPF needed to differentiate itself in the eyes of its customers, the independent life-insurance advisers who sell and service policies. To establish itself as these advisers' preferred partner, it set out to reduce the turnaround time on policy applications, simplify the submission process, and reduce errors. JPF's managers looked to the "lean production" practices that U.S. manufacturers adopted in response to competition from Japanese companies. Lean production is built around the concept of continuous-flow processing--a departure from traditional production systems, in which large batches are processed at each step. JPF appointed a "lean team" to reengineer its New Business unit's operations, beginning with the creation of a "model cell"--a fully functioning microcosm of JPF's entire process. This approach allowed managers to experiment and smooth out the kinks while working toward an optimal design. The team applied lean-manufacturing practices, including placing linked processes near one another, balancing employees' workloads, posting performance results, and measuring performance and productivity from the customer's perspective. Customer-focused metrics helped erode the employees' "My work is all that matters" mind-set. The results were so impressive that JPF is rolling out similar systems across many of its operations. To convince employees of the value of lean production, the lean team introduced a simulation in which teams compete to build the best paper airplane based on invented customer specifications. This game drives home lean production's basic principles, establishing a foundation for deep and far-reaching changes in the production system.     

Task‐Specific Human Capital and Organizational Inertia

Employees' incentive to invest in their task proficiency depends on the likelihood that they will execute the same tasks in the future. Changes in tasks can be warranted as a result of technological progress and changes in firm strategy as well as from fine‐tuning job design and from monitoring individuals' performance. However, the possibility of a change in tasks reduces employees' incentive to invest in task‐specific skills. We develop a simple two‐period principal–agent model showing that some degree of inertia benefits the principal. We then analyze how organizations can optimally combine several policies to approach the optimal degree of inertia. In particular, we consider the optimal mixture of (abstaining from) exploration, managerial vision, organizational task‐specific investments, and incentive pay. Our analysis yields testable predictions concerning the relations between these organizational policies.     

Is Transparency To No Avail?*

Transparent decision‐making processes are widely regarded as a prerequisite for the working of a representative democracy. It facilitates accountability, and citizens might suspect that decisions, if taken behind closed doors, do not promote their interests. Why else would there be the secrecy? We provide a model of committee decision‐making that explains the public's demand for transparency, and committee members' aversion to it. In line with case study evidence, we show how pressures to become transparent induce committee members to organize pre‐meetings away from the public eye. Transparency does not improve accountability, but it might improve the decision.     

Bank profitability during recessions

This paper contributes to the literature on the relation between bank profitability and economic activity. When allowing for stronger co-movement of bank profit with economic activity during deep recessions, we find a much larger impact of output growth on bank profitability than commonly found in the literature. Among the different components of bank profit, loan losses are the main driver of this result. We also find long-term interest rates in previous years to be important determinants of bank profit in times of high economic growth. Our findings are robust to the use of aggregate or individual bank data.