Monetary Policy and the Economy Q2/13

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• Monetary Policy and the Economy Q2/13 (PDF, 1,5 MB) Juni 2013.

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• Call for Applications: Visiting Research Program (PDF, 364 kB) Monetary Policy and the Economy Q2/13 en 30.06.2013, 00:00:00

• Robust Recovery Remains Elusive (PDF, 1,3 MB) Ragacs, Vondra. Ragacs, Vondra – Monetary Policy and the Economy Q2/13 en 30.06.2013, 00:00:00

• Cross-Country Comparability of the Eurosystem Household Finance and Consumption Survey (PDF, 722 kB) Fessler, Schürz. Fessler, Schürz – Monetary Policy and the Economy Q2/13 The ECB recently published the first results of the euro area Household Finance and Consumption Survey (HFCS) and a report on the methodologies applied (ECB, 2013a and 2013b). The fact that the HFCS results vary considerably across the euro area gives rise to questions regarding their comparability. We question the focus on mean and median country rankings and argue for comparisons along the full unconditional net wealth distributions. Such analyses reveal large within-country variation as well as remarkable similarities between countries with regard to the distributions of net wealth. We discuss the relevance of household size and homeownership in this context and point out important caveats with regard to the interpretation of results. In the appendix we summarize relevant methodological differences which need to be taken into account in case of cross-country comparisons. en net wealth, HFCS, inequality, distribution, data comparability, survey data D12, D14, D31 30.06.2013, 00:00:00

• Funding Strategies of Sovereign Debt Management: A Risk Focus (PDF, 2,1 MB) Holler. Holler – Monetary Policy and the Economy Q2/13 Most sovereign debt management agencies operate on a narrow definition of risk which does not reflect the potential of sovereign debt portfolios to insure the budget against macroeconomic shocks. This paper analyzes the different forms of risk implied by the composition of the sovereign debt portfolio and discusses methods for their evaluation. By determining the risk properties of existing debt management instruments we underline the potential of certain debt management instruments to insure the budget against stylized demand and supply shocks producing strong incentives for debt management agencies to operate on a broader definition of risk. The identified risk properties further highlight that the establishment of Economic and Monetary Union reduced market, rollover and liquidity risk in the aggregate euro area debt portfolio, whereas the loss of the risk free status for euro area sovereign assets and the steepening of the yield curve, both triggered by the sovereign debt crisis, led to a shift towards more short-term debt resulting in an increase in rollover risk and market risk. en sovereign debt management, portfolio optimization, fiscal insurance theory H63, E62 30.06.2013, 00:00:00

• An Export-Based Measure of Competitiveness (PDF, 2,1 MB) Gächter, Lorenz, Ramskogler, Silgoner. Gächter, Hanno Lorenz, Paul Ramskogler & Maria Silgoner – Monetary Policy and the Economy Q2/13 Unit labor cost (ULC) developments have been receiving increased attention from policymakers throughout the euro area, as adverse developments in price competitiveness are commonly seen as one of the causes of the ongoing sovereign debt crisis in the euro area. Yet empirical results are often ambiguous on the link between ULC developments and export performance. This widely examined empirical conundrum, often referred to as “Kaldor paradox,” naturally raises the question whether commonly used measures of ULC growth (such as total economy ULC) are a meaningful measure of mounting imbalances and persistent losses of trade competitiveness. Therefore, we propose a new ULC growth index that exploits disaggregated sectoral information and focuses on export-relevant sectors only. This trade-weighted ULC index is shown to have a substantially higher explanatory power for export growth than traditional ULC measures. en unit labor costs, competitiveness, export growth F14, J30 30.06.2013, 00:00:00

• Revision of Price/Cost Competitiveness Indicators for Austria (PDF, 1,9 MB) Köhler-Töglhofer, Magerl. Köhler-Töglhofer & Magerl – Monetary Policy and the Economy Q2/12 The issue of short-term competitiveness, i.e. price and cost competitiveness, has moved to center stage in the economic policy debate amid the economic crisis. Within the Eurosystem, the various indicators that are used to monitor short-term competitiveness are revised at regular intervals by the ECB and national compilers. In Austria, these indicators are compiled by the OeNB in cooperation with WIFO, the Austrian Institute of Economic Research. The regular revisions are meant to ensure that the indicators adequately reflect changing country specific trade patterns, remain useful measures and continue to be internationally comparable. In the revision undertaken in 2013, the basic conceptual framework was left unchanged in as much as the typical building blocks of the Austrian competitiveness indicator have been retained. At the same time, a number of adjustments were made: The previously fixed country weights were replaced by variable weights based on non-overlapping three-year periods, the underlying samples of trading partners and competing countries were adjusted, a services subindex was substituted for the existing travel and tourism subindex, and two new competitiveness indicators were added to enable cross-checks with the traditional consumer pricebased measures. The two additions are, first, a new price competitiveness indicator for the manufacturing industry, based on relative producer prices and second, a new cost competitiveness indicator for the Austrian economy and the services industry, based on relative unit labor costs of the total economy. The revised set of indicators shows that Austria’s price and cost competitiveness has improved continually over the past decade and a half, with manufacturing exporters experiencing stronger gains in competitiveness than other areas of the economy. Services providers have also become evidently more competitive since the beginning of 1999. Here, the improvement is found to be larger when we take into account changes in the HICP/ CPI rather than total unit labor costs. en effective exchange rates, price/cost competitiveness, (harmonized) competitiveness indicators, manufacturing sector, services sector, trade weights, third-market effects F3, F4 30.06.2013, 00:00:00

• A Changing Role for Central Banks? (PDF, 1,4 MB) Gnan, Segalla. Gnan, Segalla – Monetary Policy and the Economy Q2/13 Central banks worldwide have been playing a vital role in coping with the economic, financial and sovereign debt crisis. The crisis has shifted and has expanded central banks’ responsibilities, goals and instruments. Beyond their primary objective of maintaining price stability, central banks are in the process of assuming additional responsibilities in macro- and microprudential supervision. While unchanged on paper, monetary policy strategies have been revamped substantially in practice to suit crisis needs. The range of instruments has been widened dramatically; in many cases, unconventional policy tools now predominate or have even nearly completely replaced precrisis modes of monetary policy implementation. While the different goals central banks must now pursue – in particular price stability and macroprudential stability – are mirrored in theory by a congruent set of instruments, the delineations of goals and of the respective instruments are less clear in practice; experience will result in possible tradeoffs and will bring conflicts to the surface. At an institutional level, the increased range of competences of central banks risk attracting criticism and could ultimately also endanger central banks’ hard-won independence. Against this background, the conference sought to discuss what central banks will look like after the crisis. Like previous conferences, the 2013 conference brought together around 350 academics, central bankers, politicians and other interested constituencies to exchange views on these important issues. en 30.06.2013, 00:00:00