EU and EMU Entry: A Monetary Policy Regime Change for Austria?

Economic and Monetary Union (EMU) has changed the monetary policy regime applicable in Austria in many respects, but the stability orientation of Austria's monetary policy has been maintained. EMU's institutional framework and the actual monetary policymaking of the Eurosystem have secured Austria's legacy of monetary stability at the European level. Decision making at theOesterreichische Nationalbank (OeNB), which had been shaped by the system of social partnership, is now characterized by a greater degree of formal central bank independence. The assignment of various economic policy goals to specific policymakers or institutions, an approach Austria had already followed under the hard currency regime, was maintained under EMU. Like the hard currency policy, the Eurosystem's monetary policy has a medium- to longterm orientation. EMU stabilized Austria's nominal effective exchange rate even more than the hard currency policy could. Therefore, low domestic inflation and wage moderation play an even more important role in maintaining price competitiveness than in the past. The stable real effective exchange rate bears witness to the success in achieving this up to now. Monetary Conditions Indices and Taylor rules suggest that the monetary policy framework has eased for Austria under EMU. EU and EMU entry may have changed various channels of the monetary policy transmission mechanism.