Mario di Serio, Matteo Fragetta, and Mr. Giovanni Melina
We compute government spending multipliers for the Euro Area (EA) contingent on the interestgrowth differential, the so-called r-g. Whether the fiscal shock occurs when r-g is positive or negative matters for the size of the multiplier. Median estimates vary conditional on the specification, but the difference between multipliers in the negative and positive r-g regimes differs systematically from zero with very high probability. Over the medium run (5 years), median cumulated multipliers range between 1.22 and 1.77 when r-g is negative, and between 0.51 and 1.26 when r-g is positive. We show that the results are not driven by the state of the business cycle, the monetary policy stance, or the level of government debt, and that the multiplier is inversely correlated with r-g. The calculations are based on the estimates of a factor-augmented interacted panel vector-autoregressive model. The econometric approach deals with several technical problems highlighted in the empirical macroeconomic literature, including the issues of fiscal foresight and limited information.
Sovereign debt crises coincide with deep recessions. I propose a model of sovereign debt that rationalizes large contractions in economic activity via an aggregate-demand amplification mechanism. The mechanism also sheds new light on the response of consumption to sovereign risk, which I document in the context of the Eurozone crisis. By explicitly separating the decisions of households and the government, I examine the interaction between sovereign risk and precautionary savings. When a default is likely, households anticipate its negative consequences and cut consumption for self-insurance reasons. Such shortages in aggregate spending worsen economic conditions through nominal wage rigidities and boost default incentives, restarting the vicious cycle. I calibrate the model to Spain in the 2000s and find that about half of the output contraction is caused by default risk. More generally, sovereign risk exacerbates volatility in consumption over time and across agents, creating large and unequal welfare costs even if default does not materialize.
International Monetary Fund. Monetary and Capital Markets Department
This Technical Note sets out the findings and recommendations made in the context of the 2019 Financial Sector Assessment Program for Austria in the areas of Anti-Money Laundering/Combating the Financing of Terrorism. It provides a targeted review of Austria’s progress in addressing the Money Laundering/Terrorism Financing vulnerabilities. Several initiatives, the amendments introduced to the Financial Markets Anti-Money Laundering Act, the Beneficial Owners Register Act, and other sectoral laws have led to significant enhancements of the legal and regulatory framework which resulted in a number of upgrades on technical compliance ratings by the Financial Action Task Force in the context of the two follow-up reports. The authorities took steps to transpose the Fourth and the Fifth Anti-Money Laundering Directives into national legislation. Steps have been taken to improve the legal and regulatory framework that applies to lawyers, notaries and tax advisors, and other Designated Non-Financial Business and Professions, but there is room for enhancing implementation. The authorities have recently adopted a comprehensive set of reforms to enhance entity transparency, including through the establishment of a Register of Beneficial Ownership.