Research

In recent research (jointly with Carin van der Cruijsen and Ria Roerink) Dutch consumers’ trust in financial institutions has been analyzed. The main finding is that financially literate consumers are more likely to trust banks, insurance companies and pension funds. This result applies both to broad-scope trust (trust in financial institutions in general) and narrow-scope trust (trust in someone’s own financial institution). This conclusion holds when a financial literacy proxy based on self-assessed knowledge or a proxy based on actual knowledge is used. For all types of financial institutions, narrow-scope trust is significantly higher than broad-scope trust, but both forms of trust are positively related. Financially knowledgeable people are more likely to trust managers of financial institutions and have more trust in the prudential supervisor. Finally, the results suggest that trust in the supervisor is positively related to trust in the financial sector. The working paper version of the study is available here.

In recent years, the relationship between wage growth and the unemployment gap, known as the wage Phillips curve, has been puzzlingly weak: whereas the unemployment gap was low, wage growth was low as well. In joint research with Dennis Bonam and Duncan van Limbergen, two possible explanations for this ‘low wage growth puzzle’ are examined: (i) a structural change in the relationship between wage growth and labor market slack, and (ii) a failure of the unemployment gap to adequately capture labor demand conditions. A new measure for labor market slack is proposed which is based on a survey among firms asking whether the shortage of labor is limiting production. This labor shortage indicator points to hidden slack not captured by the unemployment gap, which resolves the low wage growth puzzle. The estimates of the wage Phillips curve for the five biggest euro area countries also suggest that the wage Phillips curve has changed over time, but not uniformly across countries. The paper is forthcoming in Economic Modelling. The working paper version of the study is available here.

Nowadays there is a lot of discussion about the impact of monetary policy, especially unconventional monetary policy, on income and wealth inequality. It is often claimed that central banks’ asset purchase programs primarily benefit the rich. In recent work with Andrea Colciago and Anna Samarina,  research on the impact of monetary policy on income and wealth inequality is discussed. This review suggests that empirical research on the effects of conventional monetary policy on income and wealth inequality yields mixed findings, although there seems to be a consensus that higher inflation, at least above some threshold, increases inequality. Despite many claims to the contrary, conclusions concerning the impact of unconventional monetary policies on inequality are also not clear cut. The paper has been published in the Journal of Economic Surveys. The study is available here.

In a research project with Bram Gootjes, the impact of fiscal rules on fiscal policy is examined. Fiscal rules are long-lasting constraints on fiscal policy in the form of numerical limits on budgetary aggregates, like government debt or the budget deficit. In a paper forthcoming in Public Choice (joint work with Richard Jong-A-Pin), data for 77 (advanced and developing) democracies over the 1984-2015 period are used to examine whether fiscal rules prevent incumbent governments from using fiscal policy for reelection purposes. The results suggest that strong fiscal rules constrain this type of manipulation of fiscal policy. The study is available here. 

Fiscal rules are often argued to make fiscal policy pro-cyclical: in good times these rules allow to spend windfall revenues, whereas in bad times they force governments to cut spending. In a paper that is forthcoming in the Journal of International Money and Finance, this issue is examined for 27 European Union (EU) member states over the period 2000-2015. Using unique real-time data, i.e. the data available to policymakers at the time they made their decisions, the study reports that even though fiscal plans in EU countries are neither pro- nor anti-cyclical, budgetary outcomes are procyclical. In contrast to popular opinion, fiscal rules reduce procyclicality. Further analysis also reveals that fiscal policy seems to be more procyclical in non-euro area countries and in times of economic prosperity. The study is available here.

Increasing the flexibility of labor and product markets is often considered necessary to enhance economic growth. The effects of such structural reforms on growth are important to study on its own. However, an important issue is whether these reforms are more effective if implemented in combination with expansionary fiscal policy. In joint work with Rasmus Wiese, the impact of labour and product market reforms on economic growth in 25 OECD countries between 1985 and 2013 is examined; the study also analyzes whether this impact is conditioned by the fiscal policy stance. The results suggest that product market reforms mostly cause slightly negative growth, except when implemented during periods of neutral fiscal policy. Labour market reforms hurt growth under tight and neutral fiscal policy, but are conducive to economic growth if introduced during periods of expansionary fiscal policy. The working paper version of the study is available here.

In a study (jointly with Razvan Vlahu and Irina Stanga) published in the Journal of Banking and Finance, the drivers of mortgage arrears are examined. Using a newly constructed database for 26 countries over 2000-2014, cross-country and within-country differences in mortgage arrears are analyzed. It turns out that macro-prudential policies (notably regulatory LTV ratios) are significantly negatively associated with the share of mortgage arrears in total residential debt. The results also suggest that better institutions are associated with lower delinquency rates, both directly and by enhancing the impact of macro-prudential policies and the right to recourse. Moreover, the effect of macro-prudential policies is conditioned by several mortgage market characteristics, like the maturity of loans, interest rate fixity, and tax deductibility of interest payments. The study is available here.

In recent years, Jakob has done research on the relationship between financial development and income inequality. A good example is the paper with Jan-Egbert Sturm, published in the European Journal of Political Economy. Using a panel fixed effects model for a sample of 121 countries covering 1975-2005, it is examined how financial development, financial liberalization and banking crises are related to income inequality. In contrast with most previous work, the results suggest that all finance variables increase income inequality. The level of financial development conditions the impact of financial liberalization on inequality. The quality of political institutions conditions the impact of financial liberalization on income inequality, in contrast to the quality of economic institutions. The study is available here.

Central banks introduced quantitative easing (QE), i.e. asset purchase programs, to raise inflation to its target (generally 2%). According to some economists, central banks better use ‘helicopter money’ (monetary financing of government expenditure or transfers to households) to boost inflation (expectations). The transmission of QE to the real economy is indirect, i.e. it runs via financial markets and institutions. In contrast, transfers into people’s accounts would directly influence private sector agents’ spending capacity rather than hoping for a trickle-down effect from financial markets and institutions. In a study with Maarten van Rooij, a survey among Dutch households is used to examine whether respondents intend to spend the money received via such a transfer. The findings suggest that only a small part of transfers will be spent and that such a transfer will hardly affect inflation expectations. Furthermore, whether transfers come from the central bank or the government hardly makes any difference. Finally, the results suggest that using helicopter money would have mixed consequences for public trust in the ECB. This paper has been published in Applied Economics. The study is available here.

Systemic risk became a key concept during the Global Financial Crisis. It refers to the possibility that an event at the level of an individual financial institution could trigger instability or even the collapse of the entire financial sector or economy. In a recent paper (joint work with Qiubin Huang and Bert Scholtens), systemic risk in the Chinese banking system is examined by estimating the conditional value at risk (CoVaR), the marginal expected shortfall (MES), the systemic impact index (SII) and the vulnerability index (VI) for 16 listed banks in China. Although these measures show different patterns, the results suggest that systemic risk in the Chinese banking system decreased after the financial crisis, but started rising in 2014. Compared to the banking system of the US, Chinese banks are at greater risk according to the CoVaR, the SII and the VI approaches, but have the lowest MES. The paper has been published in the Pacific Economic Review. The study is available here. 

In a joint study with Alan Blinder, Michael Ehrmann and David-Jan Jansen, it is asked whether recent changes in monetary policy due to the financial crisis will be temporary or permanent. Evidence from two surveys—one of central bank governors, the other of academic specialists is presented. Central banks in crisis countries are more likely to have resorted to new policies, to have had discussions about mandates, and to have communicated more. But the thinking has changed more broadly—for instance, central banks in non-crisis countries also report having implemented macro-prudential measures. Overall, the study expects central banks in the future to have broader mandates, use macro-prudential tools more widely, and communicate more actively than before the crisis. While there is no consensus yet about the usefulness of unconventional monetary policies, it is expected that most of them will remain in central banks’ toolkits, as governors who gain experience with a particular tool are more likely to assess that tool positively. Finally, the relationship between central banks and their governments might well have changed, with central banks “crossing the line” more often than in the past. The paper has been published in Economic Policy. The study is available here.

Central bank communication is the provision of information by central banks to the public on monetary policy issues via formal and informal channels, such as written reports, press conferences and speeches. A very prominent change in central bank communication is the use of what is called forward guidance (FG). Under FG, the central bank communicates not only about the current setting of monetary policy, but also makes explicit statements about the future path of policy. The reason for its popularity is straightforward. Monetary policy works not only through the current setting of policy instruments, but also through expectations about the future course of policy, which affects, among other things, the yield curve. Management of these expectations can therefore be a powerful tool once the central bank has already lowered short-term rates as much as it can (or wants to). In a recent paper with Richild Moessner and David-Jan Jansen, the literature on forward guidance is reviewed. Actual central bank communication about future policy rates in major advanced countries as well as empirical evidence on the effectiveness of this type of central bank communication is also discussed. The paper has been published in the Journal of Economic Surveys. The study is available here.

Stress testing has become an important tool for bank supervisors. In stress tests, the implications for individual banks’ financial positions under several macroeconomic scenarios are examined taking the banks’ exposures and business models into account. In a paper recently published in the Journal of Banking and Finance, the impact of banking stress tests in the U.S. on banks’ stock prices, CDS spreads, systematic risk (proxied by banks’ betas), and “systemic risk” over the 2009–15 period is examined. The effects of the disclosure of stress test outcomes are analyzed, but also the financial market impact of the disclosure of other information about stress tests, such as their announcement and the disclosure of the stress test methodology, are examined. The study reports that stock markets reacted overall positively to the release of information concerning the results of a stress test while credit markets consistently show declines in CDS spreads. It also finds that banks’ systematic risk declined in nearly all years after the publication of stress test results. Moreover, the evidence suggests that stress tests affect systemic risk. The study, which is joint work with Cenkhan Sahin and Ekaterina Neretina, is available here.