Monetary Policy and the Economy Q3/04

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• Monetary Policy and the Economy Q3/04 (PDF, 650 kB) September 2004.

Studies and Analyses

• Economic Recovery in the Euro Area and in Austria in a Dynamic Global Economic Environment (PDF, 179 kB) Hildebrandt, Schneider, Silgoner. Hildebrandt, Schneider, Silgoner – Monetary Policy and the Economy Q3/04 Economic Recovery in the Euro Area and in Austria in a Dynamic Global Economic Environment en Economic Growth Sep 30, 2004, 12:00:00 AM

• Measures to Improve the Efficiency of the Operational Framework for Monetary Policy (PDF, 158 kB) Pfeiffer. Pfeiffer – Monetary Policy and the Economy Q3/04 This study shows that strong interest rate expectations can have a massive short-term impact on counterparties' bidding behavior if certain conditions for monetary policy operations are present. This increases the probability of an undesirable reaction of potentially more volatile short-term money market rates. Therefore, during the first quarter of 2004 the Eurosystem took steps to counter such potential negative repercussions on signaling the monetary policy stance. The modifications are to make an important contribution toward increasing the efficiency of the operational framework for monetary policy. In another area — the risk control framework for eligible assets — the Eurosystem implemented measures to increase the precision and transparency of the valuation of these assets and adopted a more precise definition of the criteria for certain credit standards. en Monetary Policy Sep 30, 2004, 12:00:00 AM

• Expansionary Fiscal Consolidations? An Appraisal of the Literature on Non-Keynesian Effects of Fiscal Policy and a Case Study for Austria (PDF, 188 kB) Prammer. Prammer – Monetary Policy and the Economy Q3/04 This paper reviews the key theoretical and empirical findings of the literature on non-Keynesian effects of fiscal policy, or “expansionary fiscal consolidations.” Specifically, it seeks to identify why the empirical evidence is rather ambiguous about the effects that fiscal contractions have on private consumption, investment, national saving and output. The empirical evidence surveyed in this paper is found to provide no clear support for the existence of expansionary fiscal consolidations. The safest conclusion seems to be that fiscal policy has lost some of its ability to stabilize the economy over the recent past. Austria's fiscal consolidation of 1995—1997, identified as expansionary by the European Commission, is found to have relied significantly on one-off measures. en Fiscal Policy Sep 30, 2004, 12:00:00 AM

• The Draft Treaty Establishing a Constitution for Europe - Institutional Aspects of Monetary Union (PDF, 114 kB) Lindner, Schmidt. Lindner, Schmidt – Monetary Policy and the Economy Q3/04 On June 18, 2004, the Intergovernmental Conference (IGC), constituted by the European Heads of State or Government, reached an agreement on the Treaty establishing a Constitution for Europe which provides a new, consistent legal architecture for the EU. The legal and institutional framework for the European System of Central Banks (ESCB), the European Central Bank (ECB) as well as for the single monetary policy is defined in both the constitutional provisions of Part I and the policy areas of Part III of the Constitutional Treaty. The Statute of the ESCB/ECB is attached to the Treaty as a protocol. The constitutional provisions (Part I) not only define price stability as one of the EU's general objectives, but also confirm the sui generis nature of the ECB as enshrined in the Treaty on European Union. The Constitutional Treaty integrates the concept of “Eurosystem” and incorporates into primary legislation that the euro be defined as currency unit and symbol of the Union. In the field of monetary union (Part III), a number of new provisions, which only apply to the euro area Member States, have been created. The procedure for amending the provisions on Economic and Monetary Union (EMU) have been simplified; however, this simplified amendment procedure does not apply to the constitutional provisions. Under certain circumstances, monetary policy decisions may be taken by super-qualified majority. In principle, the Constitutional Treaty does not entail any change in substance in the field of monetary union and the amendments are largely of a technical nature. Thus, the framework conditions for monetary union as embodied in the Treaty on European Union have been reaffirmed. en Constitution, Europe Sep 30, 2004, 12:00:00 AM

• Central and Eastern Europe – The Growth Market for Austrian Banks (PDF, 226 kB) Breyer. Breyer – Monetary Policy and the Economy Q3/04 Although the Central and Eastern European banking market (excluding Russia) is relatively small with total assets of some EUR 350 billion (by comparison, total assets of banks operating in Austria were some EUR 605 billion at the end of 2003), it is nevertheless a growth market. In addition to higher economic growth, the low degree of bank intermediation (about a third of its Western European equivalent) suggests strong growth potential for banks in Central and Eastern Europe (CEE) in the coming years. Above-average growth potential, higher interest margins than in Western Europe and restructuring potential have led Western European banks to invest heavily in the CEE banking sector. Approximately 70% of the CEE banking market is currently controlled by Western European banking groups. Austrian banks were among the first to invest in Central and Eastern European countries and are now some of the best-known Western European banks in the region (market share in the region: about 22%). As early as 2002 and 2003, steady expansion in the CEE region had a positive impact on the profitability of Austria's consolidated banking sector. Favorable reports on the CEE banking market, however, often ignore potential risks. Key sources of risk in the Central and Eastern European banking market are macroeconomic imbalances, the risk of growing exchange rate volatility, credit risk, increasingly fierce competition and political risks. en Austrian Banks Sep 30, 2004, 12:00:00 AM

• “60 Years of Bretton Woods” – A Summary of the Bretton Woods Conference (PDF, 92 kB) Just, Nauschnigg. Just, Nauschnigg – Monetary Policy and the Economy Q3/04 From June 20 to 22, 2004, the Oesterreichische Nationalbank (OeNB) and the New York-based Reinventing Bretton Woods Committee co-hosted an international conference in Vienna to commemorate the 60th anniversary of the BrettonWoods institutions — the International Monetary Fund (IMF) and the World Bank. At the conference, speakers delineated the evolution of the international financial system, outlined future challenges and formulated possible solutions to crisis situations. Core issues included the governance of the international financial system, the development and future role of exchange rate regimes and a crisis prevention and resolution toolkit. en Bretton Woods Sep 30, 2004, 12:00:00 AM