Monetary Policy and the Economy Q4/08

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• Monetary Policy and the Economy Q4/08 (PDF, 1.3 MB) December 2008.

Studies and Analyses

• The Impact of the Financial Crisis on the Real Economy – Analytical Challenges from Exceptional Factors (PDF, 71 kB) Gnan, Mooslechner. Gnan, Mooslechner – Monetary Policy and the Economy Q4/08 The financial crisis that had started to unfold in the summer of 2007 took on even greater urgency in the fourth quarter of 2008. After spreading from the U.S.A. to international financial markets, it spilled over to the global real economy. With some lag, the impact on economic activity is also being felt strongly in Austria. National and international....... en 5–7 Dec 31, 2008, 12:00:00 AM

• Decline in National Product Albeit by a Smaller Margin than in the Euro Area. Sharp Drop in Inflation (PDF, 308 kB) Ragacs, Vondra. Ragacs, Vondra – Monetary Policy and the Economy Q4/08 According to the December 2008 outlook of the Oesterreichische Nationalbank (OeNB), the Austrian economy is expected to enter into recession in 2009 as a result of the financial crisis and the global economic slump. On the strength of the buoyant first half of 2008, real GDP is projected to grow by 1.6% in 2008; in 2009, however, it will shrink by 0.3%. In 2010, the Austrian economy is expected to bounce back modestly, posting GDP growth of 0.8%. Compared with the OeNB June 2008 outlook, growth expectations for 2009 and 2010 were slashed by 2.0 and 1.6 percentage points, respectively. Owing to both commodity and oil price rises, inflation will reach a record annual high (since 1992) of 3.3% in 2008. In 2009 and 2010, however, it is expected to drop sharply to 1.4% and 1.6%, respectively. en forecast, Austria C5, E17 Dec 31, 2008, 12:00:00 AM

• Are There Signs of a Credit Crunch in Austria? (PDF, 196 kB) Waschiczek. Waschiczek – Monetary Policy and the Economy Q4/08 This study examines the existing statistical evidence on corporate loan growth for signs of a credit crunch in Austria. With regard to banks’ loan supply, the Austrian results of the bank lending survey show that since the onset of the crisis in summer 2007 lending has been affected by deteriorated refinancing conditions in the interbank market and has become more restrictive. Loan demand, which in the first half of 2008 was still fairly brisk based on expanding investment and a sound earnings situation in the corporate sector, is likely to sag in the near future as a decrease in the willingness to invest is to be expected. The credit standing of firms is expected to deteriorate for cyclical reasons in the near future, too, which would also contribute to a slowdown in lending. As it seems to be relatively likely that loan supply will decline more strongly than loan demand, the emergence of a credit crunch cannot be ruled out in Austria. en bank lending, credit crunch, corporate finance E51, G21, G32 Dec 31, 2008, 12:00:00 AM

• The Interest Rate Pass-Through in Austria – Effects of the Financial Crisis (PDF, 237 kB) Jobst, Kwapil. Jobst, Kwapil – Monetary Policy and the Economy Q4/08 Lending rates are a key element in the transmission of monetary impulses to the real economy, even more so in bank-based financial systems such as the Austrian one. This article examines whether the turbulence in the financial markets and the – according to banks – resulting difficulties in raising funds in money and capital markets has led to a change in the passthrough of money market interest rates to retail interest rates. This study finds that there has been a statistically significant temporary change in the relationship between market and lending rates since July 2007 for some loan categories. However, contrary to expectations, lending rates (for business and housing loans with rate fixation periods of one to five years) were increased less than the historical correlation would have suggested. One possible explanation for this is the prevalence of relationship banking in Austria, which results in banks protecting their customers from too much volatility in interest rates. Overall, however, we do not ascertain any significant deviation from the historical pattern. en interest rate pass-through, financial crisis, monetary policy transmission C22, E43 Dec 31, 2008, 12:00:00 AM

• Wealth Effects on Consumption in Austria (PDF, 256 kB) Fenz, Fessler. Fenz, Fessler – Monetary Policy and the Economy Q4/08 Between the start of the financial crisis in the third quarter of 2007 and the third quarter of 2008, Austrian household sector losses arising from investment in tradable securities amounted to approximately EUR 24 billion. This study uses micro and macro data to examine the possible consequences of this loss of wealth on the consumption behavior of households. Micro data for Austria indicate that owing to unequal distribution, it is primarily the wealthier households that have been directly affected by the crisis. However, all households may be impacted by the consequences of the financial crisis via confidence effects, irrespective of whether they hold securities or not. Estimates based on macro data show that the marginal propensity to consume out of wealth of Austrian households is 0.05 and thus within the international average. Results of Oesterreichische Nationalbank (OeNB) simulations using a macroeconometric model indicate that a decrease in wealth has a relatively minor effect on private consumption and economic growth in Austria. Moreover, this effect only occurs with a substantial lag. Due to the historic singularity of the current financial crisis, however, above all the indirect confidence effects could be more intense than estimated. en wealth effects, financial wealth, marginal propensity to consume out of wealth, saving behavior, financial crisis E21, E44, D14, D10, D31 Dec 31, 2008, 12:00:00 AM

• The Financial Crisis in 2007 and 2008 Viewed from the Perspective of Economic Research (PDF, 195 kB) Summer. Summer – Monetary Policy and the Economy Q4/08 Many economists monitored the developments that led to the financial crisis in 2007 and 2008 with concern. The course and depth of the crisis, however, came as a surprise to many. This paper discusses whether there are structural deficits in economic research which prevent a deeper analytical understanding of the current crisis. While research on specific aspects of the current crisis mechanisms and their structural causes has been pursued very actively in recent years, this research has not yet been incorporated into the mainstream of macroeconomics and finance – a fact that hinders analytical understanding of the crisis. en financial crisis, financial stability E51, G1, G21, G28 Dec 31, 2008, 12:00:00 AM

• Crude Oil Prices and the USD/EUR Exchange Rate (PDF, 283 kB) Breitenfellner, Cuaresma. Breitenfellner, Cuaresma – Monetary Policy and the Economy Q4/08 This paper investigates the impact of changes in the U.S. dollar/euro exchange rate on crude oil prices. The negative correlation of these two variables is ascribed to five possible channels: on the supply side, the purchasing power of oil export revenues and on the demand side, local prices in non-U.S. dollar regions, investments in crude oil-related asset markets, the monetary policy regime in oil-exporting countries and the efficiency of the currency market. We give evidence that using information on the U.S. dollar/euro exchange rate (and its determinants) significantly improves oil price forecasts. We discuss the possible implications these results might suggest with regard to the stabilization of oil prices or the adjustment of global imbalances. en oil price, exchange rate, forecasting, multivariate time series models C53, F31, Q43 102–121 Dec 31, 2008, 12:00:00 AM

• Housing Market Challenges in Europe and the United States – Any Solutions Available? (PDF, 156 kB) Wagner. Wagner – Monetary Policy and the Economy Q4/08 On September 29, 2008, the Oesterreichische Nationalbank (OeNB) hosted a workshop entitled “Housing Market Challenges in Europe and the United States - any solutions available?” The workshop’s objective was to discuss the most recent developments in housing markets and housing finance. Housing prices have developed quite differently in Europe in the last decade. Austria, for example, has faced very moderate price increases compared with, for example, Spain, the U.K. or Central, Eastern and Southeastern Europe. Most economic studies claim that monetary policies exert a major influence on housing price developments, and thus transmission mechanisms are a focus of research. But additionally, different institutional features of housing finance as well as regulatory/fiscal arrangements play an important role in any explanation of house price developments. The first session addressed the recent crisis in the U.S. housing market and considered possible solutions. Session 2 offered an overview of developments in European housing markets and their macroeconomic implications, while session 3 dealt with micro data on housing wealth. Session 4 highlighted regulation and fiscal aspects. The last session was about statistics on housing markets. A panel discussion concluded the workshop. en housing markets, housing finance, financial crisis R31, R21, D53, G21 Dec 31, 2008, 12:00:00 AM

• Saving in Austria – Too Little and Too Late? (PDF, 127 kB) Schürz. Schürz – Monetary Policy and the Economy Q4/08 On October 24, 2008, the Oesterreichische Nationalbank (OeNB) held an international workshop entitled “Saving in Austria – Too Little and Too Late?”. The purpose of the event was to devote more attention to an important economic topic which even experts still do not understand sufficiently in all its various facets. In a small group of experts, the following questions were discussed at length: What determines people’s saving behavior? What influencing factors stand in the way of rational saving behavior? And what problems arise in the analytical conceptualization of household saving? en saving, wealth,household decisions,financial literacy D14, D91, E21 Dec 31, 2008, 12:00:00 AM