Monetary Policy and the Economy Q2/07

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Studies and Analyses

• Economic Growth in Austria at 3¼% in 2007 (PDF, 282 kB) Fenz, Ragacs, Schneider. Fenz, Ragacs, Schneider – Monetary Policy and the Economy Q2/07 According to the economic outlook of the Oesterreichische Nationalbank (OeNB), Austria’s real GDP will grow by 3.2% in 2007, by 2.7% in 2008 and by 2.3% in 2009. The OeNB’s growth forecasts for 2007 and 2008 have been revised upward by 0.4 and by 0.3 percentage point, respectively, since the December 2006 outlook. At 1.7%, the inflation rate in 2007 will stay unchanged against the previous year. In 2008, inflation will come to 1.8% and rise to 1.9% in 2009. Employment growth will continue to remain animated, significantly reducing the unemployment rate from 4.8% in 2006 to 4.2% in 2009. en forecast,Austria C5, E17 2007?string-8

• Output Growth in Austria and Germany: What Explains the Growth Differentials since the Early 1990s? (PDF, 367 kB) Ragacs, Schneider. Ragacs, Schneider – Monetary Policy and the Economy Q2/07 This paper attempts to explain the positive growth differential Austria has had over Germany since the early 1990s. While German output growth was dampened in the aftermath of unification, the Austrian economy benefited from a number of positive one-off shocks in the 1990s. Austria has been able to make the most of the opening up of Eastern Europe and witnessed a surge in productivity following EU accession. Moreover, given the predominance of small and medium-sized businesses in Austria, outsourcing abroad was much less of a problem for Austrian employees than for German employees. Finally, Germany saw a marked drop in full-time equivalent employment, which in turn adversely affected consumption and investment. While fiscal policies were not instrumental in generating growth differentials in the 1990s, they have played a role since 2002, as Austria, unlike Germany, has pursued an expansionary fiscal policy course. Differences in the wage-setting process and in corporate taxation provide very little, if any, explanation for the growth differential. Thus, Austria’s positive growth differential basically reflects asymmetric one-off shocks with an effect on current GDP levels rather than on the longterm growth rate. Hence, once the effects of these one-off shocks have subsided, the growth differential is likely to shrink. en Austria, Germany, growth differentials E32, O11, O57 2007?string-8

• Characteristics of Household Debt in Austria (PDF, 245 kB) Beer, Schürz. Beer, Schürz – Monetary Policy and the Economy Q2/07 The level of household debt has risen in many countries, including Austria. This study examines whether the increased level of debt represents a risk to financial stability. The data used are mainly derived from a survey on households’ financial wealth conducted by the Oesterreichische Nationalbank (OeNB). Analysis shows that high-income households tend to have more debt than low-income households; the latter, however, are more burdened by their debt. Demand for consumer loans tends to be highest among high-income households with little financial assets. As high debt levels are mostly concentrated among affluent and high-income households, household debt in Austria does not constitute a threat to financial stability. Borrowers with lower incomes and/or low levels of wealth are particularly vulnerable borrowers. en household debt, borrowing, overindebtedness D12, D14, D91 2007?string-8

• Credit Claims as Eligible Collateral for Eurosystem Credit Operations (PDF, 169 kB) Sauerzopf. Sauerzopf – Monetary Policy and the Economy Q2/07 The introduction of a “single list” of eligible collateral common to all Eurosystem credit operations on January 1, 2007, replaced the two-tier framework in place until then. Euro area credit claims (i.e. bank loans) have become eligible for use as collateral under the single list, provided they fulfill conditions specified by the ECB. Even though credit claims are more complex than marketable securities in legal as well as administrative terms, their mobilization by Austrian banks as collateral in credit operations with the Oesterreichische Nationalbank (OeNB) has surged since the beginning of 2007. Moreover, the conditions for the cross-border use of credit claims have been adapted for the new single framework; these procedures and euro area enlargement upon Slovenia’s accession lead to the expectation that the cross-border use of credit claims by OeNB counterparties in credit operations with the OeNB will increase. en credit claims, single list, assignment for security purposes. E5, K1 2007?string-8

• Capturing the Link between M3 Growth and Inflation in the Euro Area – An Econometric Model to Produce Conditional Inflation Forecasts (PDF, 352 kB) Kaufmann. Kaufmann – Monetary Policy and the Economy Q2/07 In this paper, we capture the link between M3 growth and inflation with a vector error correction model. The analysis also includes the 10-year government bond yield, the three-month EURIBOR interest rate and GDP. The long-run link between M3 growth and inflation is observable in the raw data. Over the years 1980–2006, we find that M3 growth and inflation are cointegrated, which means that deviations from long-term average real money growth lead to mean-reverting adjustment processes to restore the average level of real money growth. The full effect of an unexpected monetary shock thus materializes over time in the level of inflation, after a transitory period during which GDP and interest rates have been affected as well. Out-of-sample yearly conditional inflation forecasts are produced from 2001 to 2006 which are compared to Eurosystem staff projections. Qualitatively, the monetary model predicts future inflation rates which are consistent with the ECB’s assessment of future inflation prospects. en M3, monetary analysis, inflation forecasts. C32, E31, E37, E58 2007?string-8

• Bidding Behavior in Austrian Treasury Bond Auctions (PDF, 318 kB) Elsinger, Zulehner. Elsinger, Zulehner – Monetary Policy & the Economy Q2/07 To issue Treasury securities by auctions is a common method in many countries all over the world. The auction mechanisms used vary across countries. As our understanding of bidder behavior in Treasury auctions is still rather limited it is not surprising that the question which auction mechanism should be chosen is still unresolved. In this study, we analyze the bidding behavior in Austrian Treasury bond auctions, using a dataset which contains all bids submitted by each bidder as well as the results of 137 Austrian Treasury auctions from February 1991 to May 2006. Bidders in bond auctions have various means to react to changing market conditions: They may change the degree of bid shading, the quantity of Treasury bonds demanded and the dispersion of their bids. This paper aims to investigate how bidders adjust their strategies to varying uncertainty in the bond market, to different numbers of participating bidders and to changes in the volume of bond issues. en treasury auctions, discriminatory price auctions, bid shading, intra-bidder dispersion D44, G10 2007?string-8

• 60 Years of Marshall Plan Aid – A Critical Appraisal from an Austrian Perspective (PDF, 176 kB) Haas. Haas – Monetary Policy and the Economy Q2/07 Marking the 60th anniversary of the Marshall Plan Speech, which was delivered on June 5, 1947, this paper looks back on the evolution of one of the most important and probably most successful economic programs of recent history – the European Recovery Program (ERP). The famous speech George C. Marshall2 Marshall , then U.S. Secretary of State, gave in front of Harvard faculty members and students 60 years ago, outlined his concept of a comprehensive economic program designed to aid the reconstruction of post-war Europe, which was stricken with hunger, poverty and desperation. This marked the beginning of a momentous economic assistance program under which 16 European states and the Free Territory of Trieste benefited from economic aid in the amount of roughly USD 17 billion between 1948 and 1953. Of this amount, about USD 1.1 billion went to Austria, either in the form of goods or grants, whereas most other Western European countries received U.S. aid in the form of loans. The reason Austria was treated as a special case was primarily its geographically exposed location between East and West. en Marshall Plan, reconstruction of post-war Europe, U.S. aid. F35 2007?string-8

• Europe – Quo Vadis? 50 Years Treaty of Rome (PDF, 88 kB) Ettl, Nauschnigg, Schober-Rhomberg. Ettl, Nauschnigg, Schober-Rhomberg – Monetary Policy and the Economy Q2/07 On March 25, 1957, France, Germany, Italy, Belgium, Luxembourg and the Netherlands signed the Treaty of Rome. To commemorate the 50th anniversary of this event, the Oesterreichische Nationalbank (OeNB) and the Austrian social partners organized a conference under the heading “Europe – quo vadis? 50 years Treaty of Rome.” The conference, which was part of a series of Austrian and Europe-wide activities to celebrate the 50-year anniversary, attracted more than 250 participants. en 2007?string-8