Monetary Policy and the Economy Q2/10

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• Monetary Policy and the Economy Q2/10 (PDF, 1.5 MB) June 2010.

Studies and Analyses

• Subdued Economic Recovery given Necessary Fiscal Consolidation: Economic Outlook for Austria from 2010 to 2012 (June 2010) (PDF, 784 kB) Ragacs, Vondra. Ragacs, Vondra – Monetary Policy and the Economy Q2/10 en forecast, Austria C5, E17 Jun 30, 2010, 12:00:00 AM

• Real Estate Inheritance in Austria (PDF, 730 kB) Fessler, Mooslechner, Schürz. Fessler, Mooslechner, Schürz – Monetary Policy and the Economy Q2/10 As real estate inheritances are an important component of Austrian households’ assets, they are relevant for monetary policymaking and for the maintenance of financial stability. 20% of Austrian households have inherited real estate wealth, with some 2% of all households accounting for around 40% of the overall volume of real estate inheritances in Austria. In aggregate, real estate inheritances constitute up to 23% of households’ total real estate wealth. Households which have inherited differ from those which have not in so far as the former have a higher level of education, earn higher incomes and possess greater real estate wealth. The largest inheritance ratio is in the age group of 50- to 70-year-olds. Households with greater real estate wealth and higher income inherit more often, and they receive larger inheritances. Yet the relative share of inherited real estate properties in total real estate wealth is larger among households with smaller real estate wealth. Less well-off households may come into comparatively considerable real estate wealth through an inheritance. Real estate inheritances are of particular importance for farmers. The majority of real estate owners plan to bequeath their real estate. This intention is rather independent from wealth and income levels. en wealth, distribution, inheritances D31, D63 Jun 30, 2010, 12:00:00 AM

• Stock Market Volatility and the Business Cycle (PDF, 779 kB) Raunig, Scharler. Raunig, Scharler – Monetary Policy and the Economy Q2/10 In this paper we provide a review of the literature on the link between stock market volatility and aggregate demand. In particular, we focus on the implications of the so-called uncertainty hypothesis according to which it is primarily the uncertainty associated with stock market fluctuations that influences aggregate demand. Empirical studies find that stock market volatility indeed feeds back into the real economy. en uncertainty hypothesis, conditional volatility, business cycle E44, E20, E30 Jun 30, 2010, 12:00:00 AM

• Modeling and Predicting the EUR/USD Exchange Rate: The Role of Nonlinear Adjustments to Purchasing Power Parity (PDF, 1 MB) Cuaresma, Orthofer. Cuaresma, Orthofer – Monetary Policy and the Economy Q2/10 Reliable medium-term forecasts are essential for forward-looking monetary policy decisionmaking. Traditionally, predictions of the exchange rate tend to be linked to the equilibrium concept implied by the purchasing power parity (PPP) theory. In particular, the traditional benchmark for exchange rate models is based on a linear adjustment of the exchange rate to the level implied by PPP. In the presence of aggregation effects, transaction costs or uncertainty, however, economic theory predicts that the dynamics of the nominal exchange rate around the equilibrium value implied by PPP are nonlinear. This paper presents some of the shortcomings of the traditional linear exchange rate models and assesses whether alternative nonlinear formulations outperform them for forecasting purposes. We find that the theory of nonlinear adjustment to PPP is supported by the data in a threshold cointegration framework for the monthly EUR/USD exchange rate between 1990 and 2010. Furthermore, sizeable gains in terms of medium-term forecast accuracy can be obtained using nonlinear specifications. en exchange rates, purchasing power parity, nonlinearity, threshold models E31, F31, F37 Jun 30, 2010, 12:00:00 AM

• Central Banking after the Crisis: Responsibilities, Strategies, Instruments – Summary of the 38th Economics Conference (PDF, 279 kB) Gnan, Kaufmann. Gnan, Kaufmann – Monetary Policy and the Economy Q2/10 Central banks throughout the world have been playing a pivotal role in combating the economic and financial crisis over the past three years. The crisis has significantly and permanently transformed our understanding of both the importance and responsibilities of central banks and the strategies and instruments they employ. The OeNB’s 38th Economics Conference of May 31 and June 1, 2010, explored “Central Banking after the Crisis: Responsibilities, Strategies, Instruments,” bringing together distinguished national and international experts as well as practitioners from the world of politics, business, finance and academia to draw some policy lessons for central banks from the crisis. en Jun 30, 2010, 12:00:00 AM