The effect of capital requirement regulation on the transmission of monetary policy: evidence from Austria

This paper analyzes the role of banks’ regulatory capitalization in the transmission of monetary policy. We use a confidential dataset for Austrian banks spanning from the first quarter of 1997 to the fourth quarter of 2003. We find evidence that Austrian banks react in an asymmetric way to monetary policy depending on their regulatory excess capitalization, i.e. low capitalized banks react more restrictively to a monetary tightening than their highly capitalized peers.

Did efficiency of Indian public sector banks converge with banking reforms?

This paper examines the issue of convergence of efficiency levels among Indian public sector banks (PSBs) during the post-reforms period spanning from 1992/1993 to 2005/2006. The empirical results indicate that the majority of PSBs have observed an ascent in technical efficiency during the post-reforms years. Further, the inefficient PSBs have been noted to be catching up with the efficient ones. That is, the banks with low level of efficiency at the beginning of the period are growing more rapidly than the highly efficient banks. In sum, the study confirms a presence of convergence phenomenon in the Indian public sector banking industry.

Economies of scale and scope in the European banking sector

In this article, using the data of 2008, we try to describe the impact of scale and product differentiation in 282 European banks. While evidence of the economies of scale is less clear, the results obtained using a translogarithmic function system show that significant economies of scope do exist even for new banking products like derivatives.

Monetary policy as bad medicine: The volatile relationship between business cycles and asset prices

Austrian business cycle theory has become an important point of focus in controversial mainstream discussions regarding the role of asset prices in monetary policy. In this article, the relation between asset prices and the Austrian business cycle theory is examined. The analysis focuses on how central banking supports optimism, resulting in the redirection of entrepreneurial activity and knowledge via asset price bubbles. The crucial role of credit expansion for asset price booms is also analyzed. Following this analysis, the implications for monetary policy are deduced.

Locational choice and price competition: some empirical results for the austrian retail gasoline market

Using data from the Austrian retail gasoline market we find that a higher station density reduces average prices. Market (i.e. ownership) concentration does not significantly affect average price, however is negatively related to the density of stations. Estimation of the pricing and entry equations as simultaneous equations does not alter our conclusions, and suggests causality running from station density to price. We argue that the spatial dimension of markets allows the identification of market conduct, which is particularly relevant for competition policy.

The curious destiny of a heterodoxy: The Austrian economic tradition

The Austrian School has had a curious destiny: while contributing many concepts to contemporary economic theory, it is either ignored or criticised by much of modern economic literature. This article discusses possible reasons for this institutional sidelining and the main futures of a renewal of Austrian thought.

Demand by product characteristics: measuring solar cell quality over time

The purpose of this paper is to investigate the impact of innovation quality as a success factor of companies that satisfy demand in government-subsidized science-based markets. This paper focuses on the Photovoltaic market in Germany as a case study. It carries out the analysis in three stages. First, the efficiency of photovoltaic product characteristics is examined using data envelopment analysis (DEA). Second, by means of a metric re-scaling approach, the technical improvement of solar modules offered on the German market is analyzed over time. Next, the results of the second stage are compared to demand growth (evolution of market shares). In conclusion, it can be shown that innovation quality in science-based markets is often an explanation of long-term growth, but occasionally a reduction of performance characteristics meets demand.

Does population density matter in the process of matching heterogeneous job seekers and vacancies?

This paper studies the matching of job seekers and vacant jobs using data on local labour markets. We estimate differences in the ability of the local markets to form new matches and trace whether these differences can be explained by the differing population densities across markets or by the heterogeneity of job seekers measured by the distribution of their education level. We find that high-density areas are more efficient in forming matches than other areas despite frictions caused by the wider heterogeneity of job seekers in those areas than elsewhere.

Austrian economics and the analysis of labor markets

Theory and policy relating to labor markets is dominated by the mainstream labor market model, although a less well-known, socioeconomic version can also be identified. The mainstream model is methodologically flawed and forced, thereby, to relegate any (serious) investigation of labor market institutions and/or social structures to the margins of its analysis. The socioeconomic account is not so much methodologically flawed, as methodologically ambivalent. While this ambivalence does not actually prevent the investigation of institutions and/or social structures, it does promote ambiguity whenever we inquire into the precise nature of the interaction between them and labor markets. Insights from Austrian economics, when used in collaboration with critical realist methodology, can play a part in augmenting the socioeconomic account, generating a totally new approach to the analysis of labor markets.

The Austrian roots of the economics of institutions

This paper presents an analysis of the way the Austrian theory of institutions evolved from Menger’s main works. It also tries to advance the idea that the economics of institutions, when it deals with the emergence and evolution of rules and norms from interacting individuals, is inspired by Menger’s work and more generally by the Austrian analysis of the emergence and evolution of institutions. Recent works in the economics of institutions build on this earlier Austrian work to make it more formalized and testable.

On Laidler regarding the Austrian business cycle theory

The authors welcome criticisms emanating from neoclassical critics of Austrian economics. We congratulate Laidler for transcending the usual modes of macroeconomic analysis to take on praxeological considerations. This paper should be interpreted as a welcome for his efforts in the hope that they will be widely emulated within the profession.

The role of the financial sector in economic development: the Malaysian case

In this paper, we empirically examine the finance-economic development relations for the case of Malaysia. Using a battery of time series econometric techniques, we document robust evidence suggesting favorable output effects of financial market development. Likewise, there are consistent results showing the adverse real effects of financial volatility. The results of the development of financial intermediaries, however, are fragile. Moreover, the development of the financial markets hinges crucially on macro-economic performance and financial stability of the country. However, the process of financial market development is likely to be accompanied by financial volatility, leaving Malaysia with the trade-off between financial development and financial volatility. Lastly, we obtain limited evidence indicating the complementarity between financial market and banking sector developments.

Austrian themes,data, and sports economics

This paper uses data from Major League Baseball and themes from Moneyball by Michael Lewis to empirically illustrate Kirznerian entrepreneurship. While Kirzner envisioned competition in markets for profit, the sports economics literature shows that sporting competition has things in common with market competition. This is important because a strength of sports economics, namely, the abundant data, can help overcome a perceived weakness of Austrian economics, namely, the lack of empirical content. This paper describes and empirically confirms how certain front office decision makers of the Oakland Athletics were alert to opportunities that were being overlooked by other baseball executives.

The Austrian income tax tariff, 1955–2006

Using official statistics and tax laws, we outline and discuss the evolution of the personal income tax in Austria since the beginning of the Second Republic in 1955. Focusing on the tax tariff and its progressivity properties, we identify a period of high (and increasing) progressivity before 1989, followed by a period of diminished progressivity since 1989. While still being a powerful revenue instrument, the Austrian income tax seems to have lost both redistributive impact and political allure.

Testing efficiency of the ruble-sterling foreign-exchange market under the gold standard

This paper tests an efficient market hypothesis for the Russian ruble–UK sterling exchange rates in the gold standard period 1897–1913. Using Bayesian Markov Chain Monte Carlo methods it is shown how to test a weak-form market efficiency in a doubly truncated regression model with ARMA-GARCH error. The suggested model accounts for time series characteristics of the data and bounds of exchange rates caused by the gold points and government intervention. We find that the weak-form efficiency hypothesis can not be rejected for the gold standard ruble exchange rates in both St.Petersburg and London markets.

Transaction tax and stock market behavior: evidence from an emerging market

This study examines the impact of a stamp tax rate increase on market behavior, using data from two stock exchanges in China. We find that when the tax rate increases from 0.3 to 0.5% (which implies that the transaction cost increases by about 1/3) trading volume decreases by 1/3. This implies an elasticity of turnover with respect to a stamp tax of −50% and an elasticity of turnover with respect to transaction cost of −100%. The markets’ volatility significantly increases after the increase in the tax rate. Furthermore, the change in the volatility structure indicates that the markets become less efficient in the sense that shocks are less quickly assimilated in the markets.

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Changing of the guards: New coaches in Austria’s premier football league

Professional team sports provide an ideal real world experiment to explore the effect of top executive replacement due to the availability of excellent performance data. This paper investigates how replacing the coach affects the performance of football teams. Analyzing almost 2,000 matches of the Austrian premier football league by ordinal (probit) regression techniques we find that a new coach tends to enhance team performance in home matches but to weaken it in away matches. However, neither of these effects turns out to be statistically significant. Nevertheless, the much discussed coach effect—ousting an underperforming coach in order to improve team performance at least temporarily—may make sense despite the costs involved by providing stronger ex-ante incentives for effort.

Specification and estimation of nonstandard profit functions

This paper critically examines appropriateness of the nonstandard profit function (NSPF) as a tool for measuring profit efficiency. We show that there are some fundamental problems with the NSPF approach, the way it is currently specified and estimated. This is true irrespective of whether technical inefficiency is included or not. Instead of estimating profit efficiency directly from the NSPF, we suggest alternative specifications and recommend using the cost function approach and deriving profit efficiency therefrom. Data from US banks are used to estimate the cost function and the NSPF. Results from alternative specifications are then compared and analyzed.

Price-setting behavior of Austrian firms

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.

Austrian business cycle theory: Empirical evidence

The Austrian approach to business cycles has been seldom examined in econometric terms. This paper first reviews the essentials of that approach and the recent application of the Austrian business cycle theory in the economics literature. Quarterly data for Germany, USA, England and France, 1980:1 through 2006:1, are used to explore business cycle facts and relations between terms structure of interest rates, relative prices, composition of aggregate expenditure and real GDP. Results are consistent with the hypothesis of the Austrian business cycle theory that monetary policy shocks explain cycles. The changes in term structure of interest rates and composition of aggregate expenditure are large enough to explain changes in aggregate economic activity.