Ministry of Finance

A cointegration test statistic based upon estimation of an error correction model can be approximately normally distributed when no cointegration is present. By contrast, the equivalent Dickey-Fuller statistic applied to residuals from a static relationship has a non-standard asymptotic distribution. When cointegration exists, the error-correction test generally is more powerful than the Dickey-Fuller test. These differences arise because the latter imposes a possibly invalid common factor restriction. The issue is general and has ramifications for system-based cointegration tests. Monte Carlo analysis and an empirical study of U.K. money demand demonstrate the differences in power.

SUMMARY We propose a class of observation‐driven time series models referred to as generalized autoregressive score (GAS) models. The mechanism to update the parameters over time is the scaled score of the likelihood function. This new approach provides a unified and consistent framework for introducing time‐varying parameters in a wide class of nonlinear models. The GAS model encompasses other well‐known models such as the generalized autoregressive conditional heteroskedasticity, autoregressive conditional duration, autoregressive conditional intensity, and Poisson count models with time‐varying mean. In addition, our approach can lead to new formulations of observation‐driven models. We illustrate our framework by introducing new model specifications for time‐varying copula functions and for multivariate point processes with time‐varying parameters. We study the models in detail and provide simulation and empirical evidence. Copyright © 2012 John Wiley & Sons, Ltd.

Since the first edition of this book, the world's financial system went through its greatest crisis for a century. What made this crisis unique is that severe financial problems emerged simultaneously in many different countries and that its economic impact was felt throughout the world as a result of the increased interconnectedness of the global economy. Written for undergraduate and graduate students of finance, economics and business, the second edition of this successful textbook provides a fresh analysis of the world financial system in light of the recent financial crisis. Combining theory, empirical data and policy, it examines and explains financial markets, financial infrastructures, financial institutions and challenges in the domain of financial supervision and competition policy. This new edition features three completely new chapters, one on financial crises, a second on financial innovation, and, on the policy side, a third on the monetary policy of the European Central Bank.

Deregulation A political economy analysis Lack of urgency explains why continental Europe trails in the deregulation process. Yet there are lessons to be learnt from deregulation elsewhere. This paper reviews the situation and focuses on the political preconditions for successful deregulation. It finds a clear negative relationship between regulation and economic performance. It characterizes European countries by the degree of regulation of labour and product markets, and finds that the latter seems to be more important for economic performance. Finally, it notes the importance of a proper management of the deregulation effort – which may include some re-regulation: deregulation is more likely to succeed the more transparent the economic benefits, and the more clearly stated the objectives and the time schedule. —Kees Koedijk and jeroen Kremers

Written for undergraduate and graduate students of finance, economics and business, the third edition of Financial Markets and Institutions provides a fresh analysis of the European financial system. Combining theory, data and policy, this successful textbook examines and explains financial markets, financial infrastructures, financial institutions and the challenges of financial supervision and competition policy. The third edition features greater discussion of the financial and euro crises, including extensive analysis of their causes and impact, as well as their remedies. New material covers unconventional monetary policies, the Banking Union, the Basel 3 capital adequacy framework for banking supervision, macroprudential policies and state aid control applied to banks. The new edition also features wider international coverage, with greater emphasis on comparisons with countries outside the European Union. Visit the companion website at www.cambridge.org/de_Haan3e for password-protected PowerPoint lecture slides, solutions, figures and tables for instructors, and exercises for students.

Public organisations develop sustainable public procurement (SPP) policies to compel suppliers to contribute to societal goals. Studies show that the ability, motivation, and opportunity that procurers have to procure in a sustainable manner affect the uptake of SPP. Most studies into SPP examine these factors only in the context of one type of SPP (e.g., green procurement). The goal of this paper is therefore to examine the relationship between ability, motivation, and opportunity and six types of SPP: (1) green public procurement, (2) social return on investment, (3) circular economy, (4) bio-based public procurement, (5) innovation-oriented public procurement and (6) international social criteria. An online survey was administered amongst procurers working in Dutch public organisations. The research shows that ability, motivation, and opportunity affect Green Public Procurement (GPP). Opportunity did affect green public procurement, innovation-oriented public procurement and circular economy, but not the other types of SPP. We were unable to identify an antecedent of more social types of SPP in this research. This research shows that findings based on GPP cannot be directly generalized to other types of SPP, and that there is a need for research into the antecedents of social types of SPP.

OBJECTIVE: To assess the spread of HIV into rural areas. METHODS: Since 1994 a demographic surveillance system (with 5-monthly rounds) and open adult cohort study have been established in a rural ward in Tanzania. Two sero-surveys of all resident adults aged 15-44 and 15-46 years were conducted in 1994 1995 and 1996-1997 respectively. Qualitative data were collected on mobility, bars and commercial sex. RESULTS: Attendance of the two rounds of survey was 5820 (78%) and 6413 (80%) in 1994/1995 and 1996/1997 respectively. HIV prevalence increased from 5.8% to 6.6%. HIV incidence was 0.73 and 0.84 per 100 person years among men and women respectively. HIV incidence under the age of 20 years was low among both sexes. Striking differences in HIV prevalence and incidence were observed within the small geographic area studied: HIV prevalence in the trading center was twice that in the area surrounding the trading center (within 2 km) and three to four times that in the rural villages (within 8 km of the trading center). Aggregate level data showed significant differences between the trading center and nearby rural villages in terms of sexual behavior, commercial sex workers, mobility of the population, and alcohol use. CONCLUSION: This study documents the existence of very substantial HIV prevalence and incidence differences within a small geographic rural area. The rapid decrease in HIV prevalence within a small rural area emphasizes the importance of concentrating HIV prevention efforts on high transmission areas, such as trading centers, especially in resource-poor settings. Furthermore, this has considerable implications for monitoring the spread of HIV through sentinel sites, as such sites are typically located in high transmission areas.

Written for undergraduate and graduate students of finance, economics and business, the fourth edition of Financial Markets and Institutions provides a fresh analysis of the European financial system. Combining theory, data and policy, this successful textbook examines and explains financial markets, financial infrastructures, financial institutions, and the challenges of financial supervision and competition policy. The fourth edition features not only greater discussion of the financial and euro crises and post-crisis reforms, but also new market developments like FinTech, blockchain, cryptocurrencies and shadow banking. On the policy side, new material covers unconventional monetary policies, the Banking Union, the Capital Markets Union, Brexit, the Basel III capital adequacy framework for banking supervision and macroprudential policies. The new edition also features wider international coverage, with greater emphasis on comparisons with countries outside the European Union, including the United States, China and Japan.

Written for undergraduate and graduate students of finance, economics and business, this textbook provides a fresh analysis of the European financial system. Combining theory, empirical data and policy, it examines and explains financial markets, financial infrastructures, financial institutions, and challenges in the domain of financial supervision and competition policy. Key features: • Designed specifically for courses on European financial integration • Clear signposting and presentation of text with learning objectives, boxes for key concepts and theories, chapter overviews and suggestions for further reading • Broad coverage of European financial system – markets, infrastructure and institutions • Explains the ongoing process of financial integration, in particular the impact of the euro • Examines financial systems of new member states • Uses up-to-date European data throughout A companion website will be available with exercises and freely downloadable solutions.

We introduce a hedonic price model that enables us to disentangle the value of a property into the value of land and the value of structure. For given reconstruction costs, we are able to estimate the impact of physical deterioration, functional obsolescence and vintage effects on the structure and the impact of time on sale (and external obsolescence) on the land value simultaneously. Our findings show that maintenance has a substantial impact on the rate of physical deterioration. After 50 years of not or barely maintaining a home, a typical structure has lost around 43% of its value. In contrast, maintaining a home very well results in virtually no physical deterioration in the long run.

Abstract Financial well-being is a desirable state as it benefits individuals, families, organizations, and society, and these benefits reach beyond the financial domain. We assessed financial well-being as two components (current financial stress and expected future financial security) and used data from a representative sample of adults in the United Kingdom ( n = 411). Our study provides novel insights based on preregistered hypotheses, method, and analysis plan on the Open Science Framework. We hypothesized that both executive functioning and financial self-efficacy are positively related to financial well-being via positive financial behaviors. We also hypothesized that executive functioning moderated the indirect relation of financial self-efficacy with financial well-being, and that financial self-efficacy moderated the indirect relation of executive functioning with financial well-being. As predicted, results showed that financial self-efficacy was strongly positively related to financial well-being via positive financial behaviors. Our results did not show that executive functioning was related to financial well-being via positive financial behaviors, nor that executive functioning or financial self-efficacy operated as moderators. This study provides possible strategies for financial practitioners and service providers, among others, to help individuals and families better their financial behaviors and their financial well-being.

Abstract We investigate debt restructurings in Germany for a sample of 116 financially distressed companies. About half of the firms succeed in restructuring their debt in a workout while the others file for bankruptcy. Our evidence suggests that firms which have higher leverage, owe more debt to banks, and exhibit higher going concern values are more likely to conduct a workout. Bankruptcy is more likely for firms with deficient lender coordination and a high fraction of collateralized debt. An analysis of stock returns suggests that the market uses similar information to predict workouts. 84% of the bankrupt firms were ultimately liquidated.

This article assesses the predictive power of variables that measure market tightness, such as seller's bargaining power and sale probabilities, on future home prices. Theoretical insights from a stylized search‐and‐matching model illustrate that such indicators can be associated with subsequent home price appreciation. The empirical analysis employs listings data on residential units offered for sale through a real estate broker in the Netherlands and for certain U.S. regions. Individual records are used to construct quarterly home price indices, an index that measures seller's bargaining power and (quality‐adjusted) home sale probabilities. Using conventional time‐series models we show that current sale probabilities and bargaining power can significantly reduce home price appreciation forecast errors and help to predict turning points in local area housing markets. The measures and approaches in this article help to demonstrate ways in which researchers and practitioners can leverage listings data to gain knowledge about the current and future state of the housing market.

Using longitudinal data before and during the first six months of the COVID-19 pandemic for a representative sample of Dutch households, we examined the role of financial stress, defined as the subjective experience of lacking financial resources to cope with demands, in mental health changes. Also, we examined financial stress and mental health relations with households' income, savings, and debts. The data revealed that average mental health did not change during the first six months of the pandemic but showed considerable underlying heterogeneity. Results showed that financial stress changes significantly explained this heterogeneity. Increases in financial stress predicted decreases in mental health, whereas decreases in financial stress predicted increases in mental health. While income did not explain financial stress changes, fewer savings and more debts were related to increased financial stress, which was, in turn, negatively related to mental health. We discuss the implications of our findings for mental health care and financial security policy and provide suggestions for future research.

Do acquirors profit from acquisitions, or do CEOs overbid and destroy shareholder value?We propose a novel approach to measuring the long-run returns to mergers.In a new data set of close bidding contests we use losers' post-merger performance to construct the counterfactual performance of winners had they not won the contest.We find that winner and loser returns are closely comoving in the years before the contest, providing support for our approach to identification.After the merger, they diverge: Winners underperform losers by 24 percent over the following three years in the U.S. sample, and by 14 percent in the international sample.Merger characteristics commonly associated with underperformance, such as acquiror size, acquiror Q, or stock financing do not explain the underperformance.Instead, the large underperformance of cash-financed mergers and their post-merger increase in leverage is consistent with behavioral and practitioner views on the determinants of merger outcomes.We also show that commonly used methodologies such as the announcement effect fail to identify the acquiror underperformance.

In member states of the European Union, the current VAT treatment of activities of public authorities creates significant distortions in their decision-making between public provision and contracting out of public services. In several EU-member states, a refund of VAT to local governments eliminates this effect. Therefore, these VAT refund schemes facilitate contracting out. In member states with a refund scheme for the VAT costs of local governments or another solution to this distortion, in general refuse collection is contracted out to a relatively greater extent compared to member states without. Despite these solutions, the VAT distortion is still relevant for private suppliers of tax-exempt activities and public suppliers in other member-states. This distortion could be addressed by a change in the European VAT legislation. (JEL H 25; H 32)

Most scholars focus on the prevalence and democratic effects of (partisan) news exposure. This focus misses large parts of online activities of a majority of politically disinterested citizens. Although political content also appears outside of news outlets and may profoundly shape public opinion, its prevalence and effects are under-studied at scale. This project combines three-wave panel survey data from three countries (total N = 7,266) with online behavioral data from the same participants (over 106M visits). We create a multi-lingual classifier to identify political content both in news and outside (e.g. in shopping or entertainment sites). We find that news consumption is infrequent: just 3.4% of participants' online browsing comprised visits to news sites. Only between 14% (NL) and 36% (US) of these visits were to news about politics. The overwhelming majority of participants' visits were to non-news sites. Although only 1.6\% of those visits related to politics, in absolute terms, citizens encounter politics more frequently outside of news than within news. Out of every 10 visits to political content, 3.4 come from news and 6.6 from non-news sites. Furthermore, exposure to political content outside news domains had the same - and in some cases stronger - associations with key democratic attitudes and behaviors as news exposure. These findings offer a comprehensive analysis of the online political (not solely news) ecosystem and demonstrate the importance of assessing the prevalence and effects of political content in non-news sources.

Introduction After the fall of the Berlin Wall on November 9th, 1989 and the dissolution of the Soviet Bloc, western countries and firms entered eastern markets; inversely western markets are nowadays more open for eastern goods – trade no longer being organized by the Council of Mutual Economic Assistance (CMEA). Trade reorientation is one of Nauro Campos and Fabrizio Coricelli's (2002) “magnificent seven stylized facts of ten years of transition.” Simultaneously with this economical reorientation, we witnessed the births of new diplomatic relationships, while older ties were renewed. But there exists some variance: some countries invested more than others in new diplomatic relations. France and the Netherlands are for instance very active on the diplomatic front. These countries both created no fewer than ten new embassies in Eastern Europe and the Former Soviet Union within a time span of less than ten years. Some other countries were less active: they opened smaller consulates, or – for the moment – opted to stay out. Arguably, the decision to open an embassy is foremost a political one, but there is an economic meaning as well. This chapter goes in search of the economic rationale behind permanent representations, the so-called “foreign mission.” More specifically, we ask the empirical question whether diplomatic relationships could be associated with different trade intensities. Does a country with intensive missions abroad (like France or the Netherlands) export more than other countries if we control for other determinants of trade?

The European Community countries appear to be locked into a process that may eventually lead their economies to full monetary unification. Although the road to monetary union in the EC is bound to be bumpy, all countries appear committed to the final goal, with the possible exception of Britain. According to plans under negotiation at the inter-governmental conference that started in December 1990, the currencies of twelve European economies, which include a number of leading international currencies such as the Deutschmark, sterling and the French franc, will ultimately be replaced by a new currency, likely to be called the ‘ecu’. European monetary union, when and if it occurs, is bound to have important international implications. The new currency will be issued on behalf of a large economic area, by a new Central Bank which will be responsible for the joint monetary policy of the EC. Other international institutions such as the G-7, the IMF and the OECD will have to adapt (see Alogoskoufis and Portes, 1990), but, more importantly, there will be a major shock to the existing international monetary and exchange rate system. The ecu will be a serious challenger for the role of the US dollar as the dominant international means of payment, unit of account and store of value, and the monetary policies of the new European Central Bank will have far more important international spillovers than those of any of the existing central banks of the EC countries.

This paper reviews the state of the banking sector in Europe. At the aggregate level, the empirical data suggest that the Baltics, Cyprus, Greece and Ireland, in particular, are hit by a strong decline in lending in the wake of the financial crisis. This deleveraging is mainly caused by a reduction in cross-border supply of credit. We also examine the capital position of the European banking system, using November 2013 stock market data. In the basic scenario to restore capital to a market based leverage ratio of 3%, EUR 84 billion of extra capital would be needed for the largest 60 banks. At the bank level, the top tertile of well-capitalised banks (with a market based leverage ratio well above 4%) continues lending. By contrast, the 2nd tertile of medium-capitalised banks (between 3 and 4%) and the 3rd tertile of weakly capitalised banks (well below 3%) show a strong decline in lending. Moreover, the market-to-book ratio is below one for these banks. The market thus gives a lower value to these banks. Our findings provide prima facie evidence of a credit crunch in Europe. Another fallout of the financial crisis is an increase, though very modest, of concentration in banking in the distressed countries (Greece, Ireland, Portugal, Spain and Italy). The enhancement of financial stability through (forced) M&As seems to come at the expense of reduced competition.