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.