Focus on European Economic Integration Q3/13

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• Focus on European Economic Integration Q3/13 (PDF, 1,3 MB) September 2013.

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• Call for Entries: Olga Radzyner Award 2013 for Scientific Work on European Economic Integration (PDF, 377 kB) Focus on European Economic Integration Q3/13 en 30.09.2013, 00:00:00

• Call for Applications: Visiting Research Program (PDF, 378 kB) Focus on European Economic Integration Q3/13 en 30.09.2013, 00:00:00

• Determinants of Households’ Savings in Central, Eastern and Southeastern Europe (PDF, 646 kB) Beckmann, Hake, Urvová. Beckmann, Hake, Urvova – Focus on European Economic Integration Q3/13 This paper uses data from the Euro Survey of the Oesterreichische Nationalbank (OeNB) for ten Central, Eastern and Southeastern European (CESEE) countries to analyze the saving behavior of CESEE households between 2010 and 2011. We investigate households’ decisions to save and their subsequent portfolio choices based on the life-cycle hypothesis, i.e. by analyzing sociodemographic determinants of saving, most notably age. Understanding households’ saving behavior is particularly relevant for CESEE countries to properly address public policy challenges related to promoting financial market development and financial stability. Our findings suggest that age as well as education and income drive the propensity to save and reveal that the hump-shaped relationship between age and savings as predicted by the life-cycle hypothesis holds for CESEE. Age also plays a role in households’ portfolio choices, with younger persons having a higher propensity to own life insurance, while older persons are more likely to have savings deposits. en Households, savings, portfolio choice, life-cycle hypothesis, survey data, Central, Eastern and Southeastern Europe D14, D80, D84, G11 30.09.2013, 00:00:00

• Private Sector Debt in CESEE EU Member States (PDF, 538 kB) Lahnsteiner. Mathias Lahnsteiner – Focus on European Economic Integration Q3/13 The crisis has recalled that private sector indebtedness may constitute a core macrofinancial vulnerability. In some countries of Central, Eastern and Southeastern Europe (CESEE), risks stemming from indebtedness materialized in the form of markedly rising nonperforming loans during the crisis, following years of high credit growth. The inclusion of sector debt variables in the macroeconomic imbalances procedure – a new component in the toolbox of European economic governance – also shows the high relevance of this issue. We present systematic cross-country information about the indebtedness of the household and nonfinancial corporate sector in CESEE EU Member States and also compare this information with euro area figures. We scrutinize the fast buildup of debt prior to the financial crisis as well as the gradual adjustment that has taken place in some countries more recently. We focus on the developments of the debt stock in relation to disposable income and profitability, leverage ratios as well as the interest burden. In doing so, we are able to explore sectoral balance sheet vulnerabilities and put them into perspective. en CESEE, private sector, households, NFCs, debt, indebtedness, debt overhang, deleveraging, interest burden, leverage ratios, crisis E21, E43, E44, F34, G01 30.09.2013, 00:00:00

• Determinants of Nonperforming Loans in Central, Eastern and Southeastern Europe (PDF, 590 kB) Jakubík, Reininger. Petr Jakubík, Thomas Reininger – Focus on European Economic Integration Q3/13 Credit risk assessment is a crucial part of macroprudential analysis, with the aggregate nonperforming loan (NPL) ratio serving as a proxy for the economy-wide probability of default of the banking sector’s overall loan exposure. Therefore, the factors driving the NPL ratio deserve a lot of interest. This study provides a macroeconomic model for nonperforming loans (NPLs) for the Central, Eastern and Southeastern European (CESEE) countries. It is based on panel data for Bulgaria, Croatia, the Czech Republic, Hungary, Poland, Romania, Russia, Slovakia and Ukraine. In line with current literature, our empirical analysis confirms that economic growth is the main driver that is negatively correlated with NPL development. This inverse relation is also indicated by the stock index as a leading indicator for economic developments. However, there are also other important determinants that can help explain the change in NPL ratios in the CESEE countries: past credit growth as well as exchange rate changes coupled with the share of foreign currency loans in total loans. This study confirms and quantifies risks of excessive credit growth as well as foreign exchange lending. en Nonperforming loans, credit risk, financial stability, macroprudential framework, Central, Eastern and Southeastern Europe (CESEE), emerging Europe G28, G32, G33, G38 30.09.2013, 00:00:00

• Nonperforming Loans in CESEE – An Even Deeper Definitional Comparison (PDF, 591 kB) Barisitz. Stephan Barisitz – Focus on European Economic Integration Q3/13 This study builds on two previous studies the author contributed to Focus on European Economic Integration (FEEI), namely “Nonperforming Loans in CESEE – What Do They Comprise?” (Barisitz, 2011) and “Nonperforming Loans in Western Europe – A Selective Comparison of National Definitions” (Barisitz, 2013). It draws the following conclusions from Barisitz (2013) for the analysis of nonperforming loans (NPLs) in Central, Eastern and Southeastern Europe (CESEE): The slightly revised and simplified NPL definition (primary elements: principal or interest 90 days or more overdue and/or existence of well-defined weaknesses of loan or borrower) proposed in Barisitz (2013) facilitates cross-country comparison and is fully applicable to CESEE countries. Secondary elements (treatment of replacement loans, impact of collateral and/or guarantees, recording of total loan or only part of a loan as NPL, treatment of multiple loans to one borrower) may result in upward or downward biases of individual countries’ (suggested) NPL definitions. Overall, we derive NPL ratios that are roughly internationally comparable in a transparent and replicable manner. By providing a comparative overview of what NPLs constitute, this study (together with its two predecessors) hopes to make a contribution to the currently widely debated issues of uncertainty about banks’ balance sheets and (lack of) comparability across banks and countries. en Bank lending, CESEE, credit quality, credit risk, financial soundness indicators, nonperforming loans G12, G21, G33 30.09.2013, 00:00:00

• Residential Property Prices in Central, Eastern and Southeastern European Countries: Stocktaking of Data and a View on New Developments in Data Availability (PDF, 506 kB) Steiner. Katharina Steiner – Focus on European Economic Integration Q3/13 Residential property prices play an important role in many areas of economics and finance. They are used, for example, to determine the value of a major component of real wealth, as an indicator of financial stability risks stemming from residential property price gyrations, or to monitor inflation developments. However, the specific characteristics of residential property make primary data collection and index calculation difficult tasks. Against this background, the aim of this paper is to compare different residential property price indices in terms of price developments and methodologies for the ten Central, Eastern and Southeastern EU Member States (CESEE-10). In doing so, we focus on new developments in data availability for the CESEE-10, in particular the recent release of the Eurostat house price index (HPI). This index is a major step forward, providing improved EU-wide cross-country comparability of housing transaction prices. The comparison of the different data series with the new Eurostat index indicates some differences in the timing of local price peaks and the degree of price dynamics. Moreover, price movements diverged in some CESEE countries in the past two years. The comparison of the new Eurostat index to a price index that is purely based on asking prices exhibits a slightly lower correlation. Panel data research is set to benefit from Eurostat’s compilation of national house price indices, while time series analysis will continue to rely on the longer series of national statistics for the time being. en Residential property prices, housing markets, Central, Eastern and Southeastern Europe C8, E3, P22 30.09.2013, 00:00:00

• CESEE-Related Abstracts from Other OeNB Publications (PDF, 415 kB) Focus on European Economic Integration Q3/13 en 30.09.2013, 00:00:00

• OeNB Seminar: Monetary Policy Regimes in CIS Economies and Their Ability to Provide for Price and Financial Stability (PDF, 388 kB) Focus on European Economic Integration Q3/13 en 30.09.2013, 00:00:00

• 73rd East Jour Fixe: Croatia – The 28th EU Member State (PDF, 462 kB) Focus on European Economic Integration Q3/13 en 30.09.2013, 00:00:00

• Periodical Publications (PDF, 447 kB) Focus on European Economic Integration Q3/13 en 30.09.2013, 00:00:00