Austria’s economy weathered the crisis well, but now risks falling behind

Austria was one of the few countries in the Eurozone to emerge relatively unscathed from the financial crisis. As part of our on-going series on the economies of Europe, Klaus Weyerstrass assesses how the country’s economy has developed since. He writes that while Austria still ranks highly on GDP per capita (PPP), it has lost ground to comparable countries such as Switzerland and Germany in recent years. He argues that the key to maintaining its current economic position will be to increase spending on research and development, not least to compensate for the negative effect of a shrinking working-age population on economic growth

Gesamtwirtschaftliche Wirkungen verschiedener Arten von Staatsausgaben

aus dem Inhaltsverzeichnis: Hintergrund; Gestaltung der Fiskalpolitik und langfristiges Wirtschaftswachstum; Wachstumswirkungen der Fiskalpolitik in Österreich; Zusammenfassung und wirtschaftspolitische Implikationen; Literaturverzeichnis

Practice and Prospects of Medium-term Economic Forecasting

Government agencies and other national and international institutions are asked to perform forecasts over the medium term. In particular, the EU Stability and Growth Pact contains the obligation to formulate stability programmes over four years, covering a general economic outlook as well as the projected development of public fi nances. However, the current practice of performing medium-term economic projections is unsatisfactory from a methodological point of view as the applied methodology has been developed for short-run forecasting and it is questionable whether these methods are useful for the medium term. In particular, currently medium-term projections are mostly based on the neoclassical Solow growth model with an aggregate production function with labour, capital, and exogenous technological progress. It might be argued, however, that for medium-run projections endogenous growth models might be better suited. In this paper we give an overview of currently used methods for medium-term macroeconomic projections. Then we analyse the performance of medium-term forecasts for Austria to illustrate the strengths and weaknesses of the typical approach. In particular, the fi ve-year projections of real GDP growth, infl ation and the unemployment rate are investigated. Finally, we describe some approaches to improve medium-run projections.Econometric models; macroeconomic forecasts; aggregate production function; Austria

Practice and prospects of medium-term economic forecasting

Government agencies and other national and international institutions are asked to perform forecasts over the medium term. In particular, the EU Stability and Growth Pact contains the obligation to formulate stability programmes over four years, covering a general economic outlook as well as the projected development of public finances. However, the current practice of performing medium-term economic projections is unsatisfactory from a methodological point of view as the applied methodology has been developed for short-run forecasting and it is questionable whether these methods are useful for the medium term. In particular, currently medium-term projections are mostly based on the neoclassical Solow growth model with an aggregate production function with labour, capital, and exogenous technological progress. It might be argued, however, that for medium-run projections endogenous growth models might be better suited. In this paper we give an overview of currently used methods for medium-term macroeconomic projections. Then we analyse the performance of medium-term forecasts for Austria to illustrate the strengths and weaknesses of the typical approach. In particular, the five-year projections of real GDP growth, inflation and the unemployment rate are investigated. Finally, we describe some approaches to improve medium-run projections.Econometric models, Macroeconomic forecasts, Aggregate production function, Austria

SLOPOL6: A Macroeconometric Model For Slovenia

Slovenia entered the European Union in 2004 and was the first country of the ten new members to enter the Euro Area in 2007. As Slovenia was part of Communist Yugoslavia until 1991, the economic history of this country to some extent started after that date. This provides difficulties for attempts to discover empirical regularities to be exploited for forecasting and policy analysis. Nevertheless, in this paper, we describe a macroeconometric model for Slovenia, called SLOPOL6. It was estimated using most recent quarterly data and rests on up-to-date econometric methodology, including stationarity and cointegration analysis. The model has already been used successfully for simulations of alternative monetary and fiscal policy measures

Macroeconometric model for Slovecia

  Slovenia entered the European Union in 2004 and was the first country of the ten new members to enter the Euro Area in 2007. As Slovenia was part of Communist Yugoslavia until 1991, the economic history of this country to some extent started after that date. This provides difficulties for attempts to discover empirical regularities to be exploited for forecasting and policy analysis. Nevertheless, in this paper, we describe a macroeconometric model for Slovenia, called SLOPOL6. It was estimated using most recent quarterly data and rests on up-to-date econometric methodology, including stationarity and cointegration analysis. The model has already been used successfully for simulations of alternative monetary and fiscal policy measures[1].[1] Paper presented at the Annual International Conference in Economics, Informatics and Communications Field, Spiru Haret University, Campulung Muscel, 21-22 May 2010

Optimal exchange rate and fiscal policies for Slovenia on its way into the euro area

This paper analyzes the design of macroeconomic policies for Slovenia on its way into the Euro Area. We simulate different policy scenarios, distinguishing in particular between different exchange rate regimes. For this purpose, we use the model slopol4, a macroeconometric model for Slovenia. We determine optimal exchange rate and fiscal policies for Slovenia as solutions of optimum control problems with a quadratic objective function and the model slopol4 as a constraint. Several optimization experiments are carried out under different assumptions under a fixed exchange rate, a flexible exchange rate and a crawling peg regime approximating Slovenias entry into the Euro Area. The sensitivity of the results is examined with respect to several assumptions

Trade Deficit with China – an Issue for the Euro Area?

The rise of China in the world economy and its growing importance as investor in industrialised and developing countries raised concerns of policy makers in some countries. The large deficit in the trade with China has caused the US government to increase tariffs on imports from China. Contrary to the situation regarding trade between China and the US, trade between the euro area aggregate and China is almost balanced, with a small deficit in trade with goods and a small surplus in the services balance of the euro area. On the individual country level, Germany, Ireland and Finland record trade surpluses with China. An econometric analysis identified domestic demand as the most important determinant of the trade balance between the euro area and China. Also revealed comparative advantages, the exchange rate between the euro and the renminbi as well as the stance of fiscal policies influence the trade balance. Since trade between the euro area and China is more or less balanced, there is no need for policy actions to address any imbalances. Furthermore, for open economies which many of the euro area countries are, openness to international trade is important. Thus, European policy makers are well advice to advocate free market access, but reciprocity is important