Monetary Policy and the Economy Q4/10

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• Monetary Policy and the Economy Q4/10 (PDF, 788 kB) December 2010.

Studies and Analyses

• Recovery of the Austrian Economy Continues<br/>Economic Outlook for Austria from 2010 to 2012 (December 2010) (PDF, 474 kB) Fenz, Schneider. Fenz, Schneider – Monetary Policy and the Economy Q4/10 en forecast, Austria C5, E17 Dec 31, 2010, 12:00:00 AM

• Does a Low Interest Rate Environment Affect Risk Taking in Austria? (PDF, 854 kB) Gaggl, Valderrama. Gaggl, Valderrama – Monetary Policy and the Economy Q4/10 It has recently been argued that a prolonged period of low interest rates under benign economic conditions tends to produce excessive risk taking in financial markets. The mechanism by which monetary policy affects investors’ risk positions has been called the “risk-taking channel” of monetary policy. We discuss this channel and compare it with the more traditional broad credit channel. Furthermore, we provide new evidence on the existence of this channel, using Austrian firm and bank data taken from the OeNB’s credit register. In particular, we show that the expected default rates within Austrian banks’ business-loan portfolios increased during the period of low refinancing rates from 2003 to 2005. This result is new and important in at least two respects: first, we construct a measure of Austrian banks’ portfolio risk on the basis of a matched lender and borrower dataset. Second, we specifically identify the effect of a monetary policy regime which is characterized by interest rates that are held at a low level for too long, as opposed to the more traditional effect of monetary policy “shocks,” usually identified through quarter-on-quarter changes in short-term interest rates. en monetary policy, bank behavior, risk taking E44, E59, G21 Dec 31, 2010, 12:00:00 AM

• The Impact of Economic Factors on Bank Profits (PDF, 669 kB) Rumler, Waschiczek. Rumler, Waschiczek – Monetary Policy and the Economy Q4/10 This study examines the impact of macroeconomic changes on bank profits that Austrian banks have experienced over the past 15 years. We used several proxies based on balance sheet data at the individual bank level, as well as macroeconomic variables to capture these changes, and additionally controlled for a number of microeconomic factors. Our estimation is based on panel regression analysis using unconsolidated micro-level data reported by all Austrian banks from 1995 to 2009. While we found that disintermediation (fewer loans in total assets) and the degree of concentration in the banking sector had a positive effect on bank profitability, changes in the ownership structure (privatization and increased foreign ownership), as well as more foreign lending by Austrian banks, did not, on the basis of unconsolidated data, have a clear-cut or significant impact on bank profits. As in other countries, bank profits in Austria are contingent on the business cycle and are positively influenced by the spread between long-term and short-term interest rates. en bank profitability, banking market structure, panel econometrics, Austrian banks G21, E44, D40, G32, C33 Dec 31, 2010, 12:00:00 AM