Monetary Policy and the Economy Q1/09

Downloads

• Monetary Policy and the Economy Q1/09 (PDF, 1.7 MB) March 2009.

Studies and Analyses

• Editorial (PDF, 94 kB) Gnan, Mooslechner. Mooslechner, Gnan – Monetary Policy and the Economy Q1/09 en Mar 31, 2009, 12:00:00 AM

• Global Recession Deepens Financial Crisis Unleashes Global Economic Downturn (PDF, 242 kB) Breitenfellner, Schneider, Schreiner. Breitenfellner, Schneider, Schreiner – Monetary Policy and the Economy Q1/09 The financial crisis, which has intensified since fall 2008, has led to deteriorated funding conditions, a decline in the confidence of economic players and a dramatic slump in world trade, thereby unleashing a global recession. Governments worldwide launched measures to stabilize the financial systems and stimulate economic activity, which helped prevent a further escalation of the financial crisis. Since economic stimulus measures require some time to take full effect, a deep recession must be anticipated for 2009. In the U.S.A., an end to the recession is not in sight, despite comprehensive measures taken to support the economy. The Federal Reserve System (Fed) cut key interest rates to their lowest level historically and is now pursuing unconventional policies in a bid to revive lending. In the euro area, recession also deepened in the fourth quarter of 2008, especially due to weakening export demand and investment; unemployment rose substantially. According to leading indicators and forecasts, the economic situation will continue to deteriorate in the first half of 2009. A glimmer of hope may be seen in the fact that a number of confidence indicators seem to have hit bottom at a low level in recent weeks, implying that the downturn may level out from the second half of 2009 and then come to an end. Driven particularly by falling energy, commodity and food prices, HICP inflation decelerated markedly in recent months and in both 2009 and 2010 is expected to remain significantly below the level of price stability as defined by the Eurosystem. The past few months have also shown that the previously fast-growing emerging economies cannot escape the crisis. In particular, a number of Central, Eastern and Southeastern European countries have been hit severely. Other countries in the region, by contrast, are facing a worse, albeit still more upbeat outlook than the euro area average. The global economic crisis also hit Austria in fall 2008, resulting in a steep slump in goods exports and industrial production in October 2008. The OeNB economic indicator currently predicts real GDP to contract by 1.5% in the first quarter of 2009 (seasonally and working-day adjusted, on a quarterly basis). The Austrian economy is expected to continue to shrink by 0.7% in the second quarter of 2009. en wealth effects, financial wealth, marginal propensity to consume out of wealth, saving behavior, financial crisis E2, E3, O1 Mar 31, 2009, 12:00:00 AM

• Austria’s Exports to Eastern Europe: Facts and Forecasts Likely Impact of Slowing Exports on Growth in Austria (PDF, 222 kB) Ragacs, Vondra. Ragacs, Vondra – Monetary Policy and the Economy Q1/09_x000D_ In 2008, 72.1% of all Austrian goods exports went to the EU-27; thereof, 17.6% went to the Eastern European states that joined the EU in 2004 and 2007, and 24.6% to Eastern Europe at large. While export demand for Austrian goods has declined markedly since the end of 2008, in the context of the international economic crisis, exports to the “new” Member States declined somewhat less than those going to the “old EU.” This article offers a brief overview of the extent and development of Austrian exports to Eastern Europe, the latest growth forecasts for these countries, and their implications for Austria’s growth forecast. The latest forecasts for Eastern Europe, while pessimistic and mixed in line with the global trend, indicate that growth rates – especially in the “new” EU Member States – are still higher (or that recessions are still weaker) on average than in Western Europe. Simulations with the OeNB’s macro model show that the growth setbacks anticipated for Eastern Europe by the latest forecasts are likely to push the decline in Austria’s real GDP growth another 0.7 percentage points below the rate implied by the OeNB’s December 2008 forecast. en Austria, forecast, Eastern Europe, exports E17, F15, F47 Mar 31, 2009, 12:00:00 AM

• A Leading Indicator of Austrian Exports Based on Truck Mileage (PDF, 271 kB) Fenz, Schneider. Fenz, Schneider – Monetary Policy and the Economy Q1/09 The close correlation between economic activity and freight performance is emphasized in numerous international studies. With regard to Austria, timely information on truck mileage has been available since 2004 when Austria introduced road pricing. In this study, truck road pricing data compiled by the Austrian highway authority (ASFINAG) are analyzed for the first time with respect to their adequacy as a leading indicator for various macroeconomic indicators. The results show that truck mileage is a good leading indicator above all for goods exports. The timely availability provides an information advantage in analyzing economic developments of two to three months relative to the first release of export data by Statistics Austria. en leading indicator, transport volume, export activity, business cycle, forecasting E32, E37, F17 Mar 31, 2009, 12:00:00 AM

• Monetary Policy Implementation during the Crisis in 2007 to 2008 (PDF, 347 kB) Jobst. Jobst – Monetary Policy and the Economy Q1/09 Since the outbreak of turbulence in the financial markets in August 2007, the implementation of monetary policy – typically a peripheral aspect for observers of monetary policy – has attracted increased attention. The heightened attention was accompanied by uncertainty about how to interpret the liquidity measures taken and what to make of the new instruments introduced. This contribution provides the facts needed to properly understand central bank measures by focusing on the euro area and the U.S.A. Essentially, observers need to be aware that today, the main avenue of monetary policy implementation is interest rates rather than monetary aggregates such as the monetary base. Moreover, adjusting the liquidity implementation framework is not necessarily tantamount to changing the monetary policy stance. Finally, the specific institutional frameworks of individual central banks have a bearing on how they implement monetary policy. The contribution concludes with a description of possible techniques for implementing monetary policy under very low interest rates. en monetary policy implementation, financial crisis, operating procedures, money market, quantitative easing E43, E58 Mar 31, 2009, 12:00:00 AM

• The Effectiveness of Fiscal Stimulus Packages in Times of Crisis (PDF, 277 kB) Köhler-Töglhofer, Reiss. Köhler-Töglhofer, Reiss – Monetary Policy and the Economy Q1/09 This paper provides theoretical and empirical evidence on the effectiveness of discretionary fiscal policy in times of crisis. In “normal” times, a whole range of arguments speaks against the use of discretionary fiscal policy for stabilization purposes – yet amid the current sharp economic downturn, many of those arguments (such as implementation lags or low fiscal multipliers) have comparatively little weight. The OeNB estimates that the measures the Austrian government has adopted so far – an inflation package, two economic stimulus packages, personal income tax reform brought forward – will increase GDP by roughly ¾% and will provide for 12,000 additional jobs in 2009. The effects of those measures are expected to continue into 2010. However, as Austria’s debt ratio stands to increase substantially at the same time, the government would be well-advised to commit itself to cutting the deficit and debt ratios when the crisis is over. en discretionary fiscal policy, effectiveness of fiscal policy, fiscal multipliers E32, E62, E65 Mar 31, 2009, 12:00:00 AM

• Group-Specific Inflation Rates for Austrian Households (PDF, 305 kB) Fritzer, Glatzer. Fritzer, Glatzer – Monetary Policy and the Economy Q1/09 The consumer price index commonly computed by national statistical agencies can be interpreted as a weighted average of price indices for individual households, with the weights proportional to the total consumption expenditure of each household. In other words, the aggregate consumer price index is usually not a perfect indicator of the inflation experience of individual households. The extent to which household-specific inflation rates diverge from headline inflation generally depends on three things: 1) the divergence of consumption patterns across consumer units; 2) the divergence of expenditure budgets across households; and 3) the divergence of price developments across expenditure items. To estimate the divergence of group-specific consumer price indices across Austrian households, we construct group-specific inflation rates for the period from 2000 to October 2008 and evaluate consumption patterns across household groups. Households were grouped using a mix of two characteristics: a) household composition (i.e. male/female singles; two adults; three or more adults; lone parents; three or more persons, including children); b) low, medium or high household income. The study finds households with lower total spending to have experienced a higher inflation rate than the “average” consumer in the period under review. The average gap was about –0.1 percentage points annually. Second, the inflation contribution of housing and food (including nonalcoholic beverages) was higher for lower-income groups. Third, higher-income households usually have a higher inflation share of transport than lower-income households. Fourth, households with children and larger households do not necessarily suffer above-average inflation. en price level, inflation, index numbers and aggregation, group-specific inflation, microeconomic data E31, C43, C81 Mar 31, 2009, 12:00:00 AM

• Public Sector Outsourcing: Creative Accounting or a Sustainable Improvement? – A Case Study for Austria (PDF, 211 kB) Prammer. Prammer – Monetary Policy and the Economy Q1/09 The key rationale for public sector outsourcing is normally to improve public sector delivery as well as the state of public finances as defined by the Maastricht criteria. Like the underlying motives, the ensuing effects may also be diverse, however: increased business efficiency is generally accompanied by redistribution effects, and public sector outsourcing can affect the state’s role as a service provider and may have implications for the state’s stabilizing function. By the same token, the fiscal effects of such outsourcing are not always clear-cut. While the fiscal balance can typically be “improved” in the short term, the common fiscal indicators tend to become less meaningful as a result. The long-term fiscal effects of public sector outsourcing – especially, on long-term fiscal sustainability – have barely been researched. As a review of two Austrian outsourcing cases – BIG (federal facility management company) and ÖBB (Austrian Federal Railways) – shows, public sector outsourcing has a major impact on the assessment of fiscal sustainability without actually improving fiscal sustainability itself. en sustainability of public finances, effects of public-sector outsourcing, creative accounting E62, H62, H63 Mar 31, 2009, 12:00:00 AM