We assess the effectiveness of the financial sector stabilisation measures taken by the Austrian authorities in the wake of
the global financial crisis. Employing an event study methodology, we evaluate domestic and cross-border effects involving
Central, Eastern and South-eastern European economies. We identify recapitalisations and public guarantees as the most effective
sovereign interventions. Both mitigate financial market stress at home and abroad. However, a risk-shifting effect emerges
at the sovereign's expense which undermines their effectiveness relative to monetary policy interventions. Moreover, in complement
to the actual implementation, the mere announcement of interventions already mitigates financial market stress, underscoring
the extent of policy credibility.
We propose a modelling approach based on a set of small-scale factor models linked together in a cluster with linkages derived
from Granger causality tests. GDP forecasts are produced using a disaggregated approach across production, expenditure and
income accounts. The method combines the advantages of large structural macroeconomic models and small factor models, making
our cluster of dynamic factor models (CDFM) useful for large-scale model-consistent forecasting. The CDFM has a simple structure,
and its forecasts outperform those of a variety of competing models and professional forecasters. In addition, the CDFM allows
forecasters to use their own judgment to produce conditional forecasts.
Study by: Austrian Institute of Economic Research – Economic and Social Science Computing Center
We present an uncertainty measure that is based on a business survey in which uncertainty is captured directly by a qualitative
question on subjective uncertainty regarding expectations. Uncertainty perceptions display persistence at the firm level and
changes are associated with past business assessments and expectations. While our uncertainty measure correlates with commonly
used alternatives, it is superior in forecasting and suggests a larger role of uncertainty shocks for aggregate fluctuations.
Its informational content is highest when considering smaller firms or firms with a low growth rate. Our results confirm the
feasibility of constructing uncertainty measures from business survey questions that elicit information on uncertainty of
This study assesses the effects of reserve requirements on the probability of bank failure and compares them to those of capital
requirements. While both requirements affect banks' balance sheets and lending rates similarly, their effects on financial
stability can differ markedly. When adjustment in deposit rates is constrained, the cost effect arising from higher reserve
requirements may incentivise banks to choose riskier assets rendering worse financial conditions. Borrowers' moral hazard
problem augments these adverse effects. They are mitigated when considering imperfectly correlated loan-default as higher
interest revenues from non-defaulting loans curb losses from defaulting loans.
We apply the tradable-nontradable framework to evaluate the lack of convergence in labour productivity among EU Member States.
Our results show that increases in overall productivity are primarily due to the tradable and not the nontradable sectors
of production. The low productivity growth in peripheral EU countries before the crisis was accompanied by a sharp increase
in the production of nontradables (i.e., nontradable goods and services) relative to other EU countries. We identify differences
in the legal systems and the quality of public institutions, among others, as factors relevant for explaining the observed
productivity growth differentials. Our findings have implications for the European Commission's macroeconomic imbalance procedures
since the tradable-nontradable approach allows identifying patterns of real divergence on a disaggregated level.
While all EU economies witnessed a sharp decline in output during the financial crisis, the peripheral EU countries were particularly
hard hit. This is surprising, given their sound macroeconomic performance prior to the crisis. It became obvious that imbalances
had been building up underneath a seemingly tranquil macroeconomic surface. We argue that the underlying mechanisms are mirrored
by productivity developments in a tradable-non-tradable framework. Countries that were severely affected not only exhibited
low productivity growth in tradables (e.g., manufacturing), but also experienced a sharp increase in the production of non-tradables
(e.g., real estate) before the crisis.