Monetary Policy and the Economy Q3/06

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• Monetary Policy and the Economy Q3/06 (PDF, 1.1 MB) September 2006.

Studies and Analyses

• Euro Area Economy Gains Strength (PDF, 344 kB) Pointner, Schneider, Schreiner. Pointner, Schneider, Schreiner – Monetary Policy and the Economy Q3/06 The world economy continues to expand, albeit at a slightly more subdued pace. In the U.S.A., the growth deceleration was primarily attributable to lower investment and weaker consumer spending. In response to these developments, the Federal Reserve kept the key interest rate steady in August 2006, after raising it 17 consecutive times over the past two years. In Japan, the economic recovery gathered enough steam for the Bank of Japan to hike interest rates in July for the first time in six years. China’s and Southeast Asia’s high growth rates remained broadly unchanged; inflationary pressures have increased in several countries of the region, above all because of the high oil price. The euro area economy continued to recover, with GDP growth exceeding expectations in the second quarter of 2006. Recent forecasts suggest that growth – which was carried primarily by domestic demand – will exceed potential growth in 2006, and unemployment is expected to decline markedly. Even though the short-term outlook for price stability has deteriorated owing to an increase in indirect taxes in Germany, the upward pressure on consumer prices may be expected to ease, as the oil price has decreased significantly since mid-August after triggering a rise in inflation. en Economic developments, Global outlook, Euro area, Central and (South-)Eastern Europe, Austria E200, E300, O100 Sep 30, 2006, 12:00:00 AM

• Globalization, Import Prices and Producer Prices in Austria (PDF, 301 kB) Glatzer, Gnan, Valderrama. Glatzer, Gnan, Valderrama – Monetary Policy and the Economy Q3/06 The growing theoretical and empirical literature suggests that globalization may have reduced inflation, particularly in high-income countries. Austria’s integration in the world economy has made a quantum leap over the past decade. Has this development dampened inflation in Austria? This paper first offers a broad overview of six channels through which one could expect globalization to reduce inflation. Then, two specific channels are investigated empirically for Austria. First, the effects from the increasing share of imports from low-cost countries on import prices are estimated. It is found that overall import prices were slightly dampened by the rising, and meanwhile substantial, share of imports from the new EU Member States. By contrast, China and other emerging economies play a negligible role for Austrian import price developments. Second, the effect of global competition on producer prices in Austria is studied. It is found that globalization has moderately dampened relative producer prices in the Austrian manufacturing sector, while increases in labor productivity had a larger effect. A rationale for the rather modest globalization effects on import and producer price inflation in Austria is that the country’s foreign trade and FDI links are still – despite the surge of links with central and eastern European countries – mainly with other high-income European countries.: en Globalization indicators, Import and producer prices, Inflation, Austria E31, E50, F15 Sep 30, 2006, 12:00:00 AM

• Employment Protection Regulations and Their Impact on Employment (PDF, 179 kB) Pointner. Pointner – Monetary Policy and the Economy Q3/06 Employment protection legislation (EPL) forms part of the institutional framework governing labor market allocation processes. It increases the costs enterprises incur when terminating contracts, either directly via severance payments or indirectly via procedural costs (e.g. notice periods or court trials). EPL is often considered to be the main reason for the high unemployment level in several euro area countries. While the empirical evidence for this correlation is generally rather weak, more robust results are found for its adverse impact on the employment opportunities of certain sociodemographic groups – especially women and the young. Another means to reduce the income risk associated with job loss are unemployment insurance benefits, which – contrary to employment protection – do not affect the employment opportunities of specific sociodemographic groups. An analysis of the effects of EPL on employment certainly needs to take into consideration other labor market institutions, too, as they are often highly correlated and their effects interact. Insofar as employment protection not only stabilizes the protected employees’ income, but also serves as an incentive to acquire firm-specific human capital, a certain degree of employment protection can also contribute to gross domestic product (GDP) growth. en Employment protection, Severance pay, Flexicurity J08, J65 Sep 30, 2006, 12:00:00 AM

• The (New) OECD Jobs Study: Introduction and Assessment (PDF, 225 kB) Stiglbauer. Stiglbauer – Monetary Policy and the Economy Q3/06 In 1994, the OECD presented the Jobs Study analyzing the causes of high unemployment in Europe. The study identified inappropriate labor market regulations and legislation as a key determinant of high unemployment. The OECD recommended deregulation and liberalization of labor market institutions as a remedy. Meanwhile, new empirical research has explored the influence of labor market institutions on unemployment and has only partly confirmed the recommendations of the Jobs Study. In a reevaluation, the OECD now concludes that different combinations of institutions may foster good labor market performance. Like the Scandinavian countries, Austria is a country with strong labor market institutions and low unemployment. en Jobs study, Unemployment, Labor market institutions, Labor market regulation E24, J50, J60 Sep 30, 2006, 12:00:00 AM

• How Do Austrians Pay for Online Purchases? (PDF, 198 kB) Stix, Wagner. Stix, Wagner – Monetary Policy and the Economy Q3/06 The Internet has become an integral part of everyday life for many people: More than 60% of Austrians have access to the World Wide Web at their workplace or at home. The rapidly growing possibilities to access and use the Internet have also given rise to new forms of payment specifically designed for goods and services ordered online. Against this background, this study presents the results of a survey commissioned by the Oesterreichische Nationalbank on the payment methods Austrians choose when shopping on the Internet. The results showed that the vast majority of online payments (52%) are made via bankbased payment services (payment slips, preauthorized debit, etc.). Credit cards are used for 30% of transactions, and payment by COD (cash on delivery) accounts for a share of 13%. This study compares and complements these findings with the results of other surveys and also looks into the reasons respondents cited in favor of or against online shopping. en E-money, E-commerce, Online payment means, Monetary policy E58, D12, O33 Sep 30, 2006, 12:00:00 AM