The Eurosystem’s monetary policy response to the COVID-19 crisis has been swift and powerful. Its policy package contained both extensions and enlargements of existing unconventional monetary policy measures, including the further loosening of their respective conditions. The Eurosystem also introduced new measures to meet the extraordinary challenge posed by the economic fallout of the COVID-19 pandemic. In this paper, we provide a pilot study to analyze the credit supply effects of one important building block of the monetary policy rescue package: the Eurosystem’s targeted longer-term refinancing operations (TLTROs). The modalities and conditions of the current vintage of TLTRO, TLTRO III, were significantly relaxed in spring 2020 in response to the COVID-19 pandemic. We draw on Austrian bank-level data and exploit an instrumental variable strategy to approximate the effects of the June 2020 TLTRO uptake on banks’ supply of new loans. We find evidence for an unambiguously positive effect of TLTRO participation on the supply of new loans in Austria. The estimated credit supply elasticity, however, differs substantially (ranging between 0.26 and 1.00), depending on the specification and caveats considered.

In this paper we explore empirically to what extent expected monetary policy matters for the dynamics of bank lending rates in the U.S. and in the U.K. Based on endogenously determined break points, we document a number of structural breaks in the relationship between expected policy and retail interest rates. We find that banks have increasingly behaved in a forward-looking fashion by taking expected changes in monetary policy rates into account. Overall, our results provide support for the hypothesis that monetary policy has become more effective by successfully influencing private sector expectations.

This paper analyses information from survey data collected in the framework of the Eurosystem's Wage Dynamics Network (WDN) on patterns of firm-level adjustment to shocks. We document that the relative intensity and the character of price vs. cost and wage vs. employment adjustments in response to cost-push shocks depend - in theoretically sensible ways - on the intensity of competition in firms' product markets, on the importance of collective wage bargaining and on other structural and institutional features of firms and of their environment. Focusing on the pass-through of cost shocks to prices, our results suggest that the pass-through is lower in highly competitive firms. Furthermore, a high degree of employment protection and collective wage agreements tend to make this pass-through stronger.

In this paper we investigate the response of prices to shocks based on a survey of Austrian firms. We find that firms are more likely to change prices after a cost shock than after a demand shock. In this vein, our analysis suggests that regular customers are an important explanation for price rigidity after demand shocks. Furthermore, lacking competition is another significant explanation for price stickiness. Finally, we find asymmetric responses after cost and demand shocks. Prices appear to be more rigid downward than upward after cost shocks, while they are more rigid upward than downward in reaction to shifts in demand. Copyright © 2009 John Wiley & Sons, Ltd.

Based on an ad hoc firm-level survey on wage and pricing policies conducted in a large number of European countries, this study finds that about 60% of firms change base wages once a year with some clustering of wage changes observed in January. Differences in the frequency of wage changes between firms are mainly attributable to the institutional framework of the labor market in which they operate. There is evidence of both nominal and real downward wage rigidity. Moreover, when facing a negative shock, European firms prefer to reduce the amount of labor rather than cutting wages. Among those that decide to cut wages a majority prefers to cut flexible wage components rather than base wages. The rigidity of base wages is largely explained by fairness and efficiency considerations.

This article is based on the results of two company surveys - the first was conducted in 2007, before the recession 2008/2009 hit Austria, and the second was conducted in 2009 shortly after the trough of it. We analyse firms’ reactions to the crisis and focus on their labour market relevant decisions. Although base wages were cut more frequently than in economically calm times, wage reductions continued to be the exception rather than the rule. This indicates the existence of nominal wage rigidities in Austria. Instead of wage cuts, firms preferred to reduce working hours and to dismiss employees. We find that firm specific characteristics as well as characteristics of the workforce help explaining a firm’s probability of dismissing employees. However, the force of the shock by which an individual firm is hit (during the 2008/2009 recession) does not influence the likelihood of dismissals.

In this paper we analyze equilibrium determinacy in a sticky price model in which the pass-through from policy rates to retail interest rates is sluggish and potentially incomplete. In addition, we empirically characterize and compare the interest rate pass-through process in the euro area and the U.S. We find that if the pass-through is incomplete in the long run, the standard Taylor principle is insufficient to guarantee equilibrium determinacy. Our empirical analysis indicates that this result might be particularly relevant for bank-based financial systems as for instance that in the euro area.

Lending rates are a key element in the transmission of monetary impulses to the real economy, even more so in bank-based financial systems such as the Austrian one. This article examines whether the turbulence in the financial markets and the – according to banks – resulting difficulties in raising funds in money and capital markets has led to a change in the passthrough of money market interest rates to retail interest rates. This study finds that there has been a statistically significant temporary change in the relationship between market and lending rates since July 2007 for some loan categories. However, contrary to expectations, lending rates (for business and housing loans with rate fixation periods of one to five years) were increased less than the historical correlation would have suggested. One possible explanation for this is the prevalence of relationship banking in Austria, which results in banks protecting their customers from too much volatility in interest rates. Overall, however, we do not ascertain any significant deviation from the historical pattern.

Abstract This chapter investigates price rigidity after cost and demand shocks in Austria. We find that the average time lag between a shock and the price adjustment is four to six months. Furthermore, firms' price reactions to cost and demand shocks are asymmetric: prices are stickier downward than upward in the face of cost shocks and the opposite is true in the case of major demand shocks. Finally, our results suggest that tight customer relationships increase price stickiness in response to demand shocks.

This paper explores nominal rigidities by investigating price-setting behavior of Austrian firms based on survey evidence. Distinguishing between two stages of price setting—first the price reviewing phase and second the price changing phase—our results suggest that the main obstacles to price flexibility lie on the second stage. Our main result is that firms postpone price adjustments, because they are afraid to antagonize customers with frequent price changes. Thus, customer relationships - especially those with consumers—are a major source of price stickiness in the Austrian economy.

Abstract This chapter summarizes the results of firms' pricing practices collected through surveys conducted by the national central banks of nine countries. The results suggest that the model of perfect competition with the law of one price is not the blueprint for euro area markets: markup pricing is the dominant practice adopted by firms in setting prices and price discrimination, across customers and markets, and it is very common. Around one-third of the companies follow mainly time-dependent rules while the remaining two-thirds use pricing rules with some element of state dependence. Firms review prices with a frequency between one and three times per year and take into account a wide range of information including expectations, although about one-third of them follows a purely backward-looking behavior. Price movements in response to shocks are asymmetrical: price increases are mostly affected by cost shocks, and price reductions mostly affected by changes in market conditions (demand and competitors' prices).

papers presented at the workshop analyzed the price formation process and the determinants of inflation persistence in Austria from different perspectives and on the basis of various data sources. The first session addressed the degree and determinants of price rigidities at the micro level. Session 2 provided an analysis of inflation persistence in Austria at the aggregate and sector levels, while session 3 dealt with Austrian consumersinflation perceptions. A policy panel discussion concluded the workshop.

sterreich wird in der vorliegenden Studie einerseits anhand von Mikropreisbeobachtungen aus dem Verbraucherpreisindex und andererseits mithilfe einer einmalig durchgefu‹hrten Unternehmensbefragung zum Preissetzungsverhalten untersucht. Die Analyse der Mikropreisbeobachtungen zeigt, dass die Konsumentenpreise im Durchschnitt (u‹ber alle im Warenkorb enthaltenen Gu‹ter) etwa einmal im Jahr angepasst werden. Allerdings bestehen starke sektorale Unterschiede: So werden die Preise von Energieprodukten sowie von unverarbeiteten Nahrungsmitteln am ha‹ufigsten angepasst, wa‹hrend die Preise von nicht energetischen Industriegu‹tern und von Dienstleistungen seltener gea‹ndert werden. Im Vergleich zu anderen La‹ndern des Euroraums befindet sich O‹ sterreich mit diesem Ausma§ an Preisvera‹nderungen im Mittelfeld und fa‹llt somit weder durch besonders rigide noch durch besonders flexible Preise auf. Die Euro-Bargeldumstellung hat — auf Basis des analysierten Datensatzes — keinen signifikanten Inflationseffekt mit sich gebracht. Aus der Unternehmensbefragung geht hervor, dass die Preise (auf Produzentenebene) wesentlich ha‹ufiger u‹berpru‹ft (etwa viermal im Jahr) als tatsa‹chlich gea‹ndert werden (etwa einmal im Jahr). Somit scheinen Rigidita‹ten eher auf der zweiten Stufe des Preisgestaltungsprozesses — bei der tatsa‹chlichen Preissetzung — zu bestehen. Als Gru‹nde, warum die Firmen ihre Preise nicht immer sofort anpassen, werden implizite (langfristige Kundenbeziehungen) und explizite Vertra‹ge angegeben.

This study investigates the pricing behavior of firms in the euro area on the basis of surveys conducted by nine Eurosystem national central banks, covering more than 11,000 firms. The results, consistent across countries, show that firms operate in monopolistically competitive markets, where prices are mostly set following markup rules and where price discrimination is common. Around one-third of firms follow mainly timedependent pricing rules, while two-thirds allow for elements of state dependence. The majority of the firms take into account both past and expected economic developments in their pricing decisions. Price reviews happen with a low frequency, of about one to three times per year in most countries, but prices are actually changed even less. Hence, price stickiness arises at both stages of the price-setting process and is mainly driven by customer relationships — explicit and implicit contracts — and coordination failure. Firms adjust prices asymmetrically in response to shocks: while cost shocks have a greater impact when prices have to be raised than when they have to be reduced, a fall in demand is more likely to induce a price change than an increase in demand

This paper presents original evidence on price setting in the euro area at the individual level. We use micro data on consumer (CPI) and producer (PPI) prices, as well as survey information. Our main findings are: (i) prices in the euro area are sticky and more so than in the US; (ii) there is evidence of heterogeneity and of asymmetries in price setting behaviour; (iii) downward price rigidity is only slightly more marked than upward price rigidity and (iv) implicit or explicit contracts and coordination failure theories are important, whereas menu or information costs are judged much less relevant by firms.