Synthetic Control Method for Dutch Policy Evaluation

Nils Verheuvel (), Joost Witteman and Marilou Vlaanderen
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Nils Verheuvel: SEO Amsterdam Economics
Joost Witteman: SEO Amsterdam Economics
Marilou Vlaanderen: SEO Amsterdam Economics

De Economist, 2023, vol. 171, issue 1, No 4, 83 pages

Abstract: Abstract We apply the synthetic control method to a case study of the Dutch State Treasury Agency’s funding policy. We study empirically what effect a change in funding strategy by the Dutch treasury had on market conditions. First, our results suggest that introducing more uncertainty to the funding policy, by means of a target range for capital market issuances, does not lead to a higher risk premium on Dutch government debt. Second, our paper shows that the synthetic control method, or the related constrained regression, is more suitable than a difference-in-differences method for this particular case study. The synthetic control method and constrained regression only include control units that are similar to the Netherlands. The difference-in-differences estimator includes all control countries, even ones that are not similar to the Netherlands. The difference-in-differences estimates incorrectly suggest that introducing more uncertainty in the funding policy leads to a higher risk premium. This shows that synthetic control and constrained regression are in some cases more suitable than a standard difference-in-differences. Furthermore, the synthetic control and constrained regression results hold when time and unit placebo tests are applied, whereas difference-in-differences results are not robust for this case study.

Keywords: Policy evaluation; Sovereign debt management; Synthetic control method; Risk premia; Comparative methods (search for similar items in EconPapers)
JEL-codes: C80 E60 H63 (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1007/s10645-022-09417-5

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