Tu Felix Austria: Evidence for a de-celerator in financial reform

This paper analyzes some reasons for the apparent success of financial liberalization in Austria. Against the odds, Austria’s ambitious program of deregulation between 1977 and 2000 did not result in a financial crisis, but yielded large and tangible benefits. While the Austrian experience has so far not attracted much attention in the literature, it may contain important lessons on policy best practices, and on the transmission mechanism of monetary policy. Three implications emerge from this study: First, gradualism worked well. The slicing of reforms into manageable pieces avoided a cumulation of risk factors and the emergence of financial bubbles. Second, financial reform was timed in a counter-cyclical manner, which added stability to the economy. Finally, the large banking sector was able to stabilize itself. The predominance of financial networks and non-profit banks in Austria gave rise to a counter-cyclical lending behavior, i.e. a financial decelerator. Copyright Springer-Verlag Berlin Heidelberg 2004