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Determinants of TARGET2 imbalances

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Author Info

  • Martina Cecioni

    ()
    (Banca d'Italia)

  • Giuseppe Ferrero

    ()
    (Banca d'Italia)

Abstract

The paper analyzes developments in TARGET2 imbalances within the euro area since 2007, from two perspectives: national central banks’ balance sheets and countries’ balance of payments (BoP). We examine the relationship between TARGET2 balances and the Eurosystem liquidity provision, analyzing how the circulation of the latter has changed during the crisis. We then study BoP developments in Greece, Portugal, Italy and Spain, investigating which of the following explanations accounts for the growing TARGET2 imbalances: (i) current account deficit, (ii) decrease of net inflows of private capital from securities and interbank markets and (iii) run on deposits. The results of our analysis suggest that while the increase in TARGET2 liabilities is related to the current account deficit in Greece, there is no evidence of this in Italy, Spain and Portugal. In all countries the increase is mostly driven by private capital outflows in securities and interbank markets; deposit runs are apparent only in Greece. In Italy, the reduction of capital inflows consisted entirely in a decrease in the interbank market cross-border activity and in portfolio investments by non-residents.

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Bibliographic Info

Paper provided by Bank of Italy, Economic Research and International Relations Area in its series Questioni di Economia e Finanza (Occasional Papers) with number 136.

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Date of creation: Sep 2012
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Handle: RePEc:bdi:opques:qef_136_12

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Keywords: payment system; financial crisis; monetary policy;

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References

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  1. Hans-Werner Sinn & Timo Wollmershäuser, 2011. "Target Loans, Current Account Balances and Capital Flows: The ECB’s Rescue Facility," CESifo Working Paper Series 3500, CESifo Group Munich.
  2. Ulrich Bindseil & Philippine Cour-Thimann & Philipp König, 2012. "Target2 and Cross-border Interbank Payments during the Financial Crisis," CESifo Forum, Ifo Institute for Economic Research at the University of Munich, vol. 13(SPECIALIS), pages 83-92, 02.
  3. Silvia Merler & Jean Pisani-Ferry, 2012. "Sudden Stops in the Euro Area," Review of Economics and Institutions, Università di Perugia, vol. 3(3).
  4. Jens Ulbrich & Alexander Lipponer, 2012. "Balances in the Target2 Payments System – A Problem?," CESifo Forum, Ifo Institute for Economic Research at the University of Munich, vol. 13(SPECIALIS), pages 73-76, 02.
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Citations

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Cited by:
  1. Sergio Cesaratto, 2012. "The endless eurozone crisis, where do we stand? a classical-kaleckian overview," STUDI ECONOMICI, FrancoAngeli Editore, vol. 2012(107), pages 35-63.
  2. Sergio Cesaratto, 2013. "The implications of TARGET2 in the European balance of payments crisis and beyond," European Journal of Economics and Economic Policies: Intervention, Edward Elgar, vol. 10(3), pages 359—.
  3. Stephen Cecchetti & Robert McCauley & Patrick McGuire, 2012. "Interpreting TARGET2 balances," BIS Working Papers 393, Bank for International Settlements.
  4. Astarita, Caterina & Purificato, Francesco, 2013. "TARGET2 imbalances and the need for a lender of last resort," MPRA Paper 51124, University Library of Munich, Germany.
  5. Angel Ubide, 2013. "Reengineering EMU for an Uncertain World," Policy Briefs PB13-4, Peterson Institute for International Economics.
  6. Georg Dettmann, 2014. "Determinants of Internal and External Imbalances within the Euro Area," Working Papers 01/2014, University of Verona, Department of Economics.
  7. Carlo Panico & Francesco Purificato, 2013. "The Debt Crisis and the European Central Bank’s Role of Lender of Last Resort," Working Papers wp306, Political Economy Research Institute, University of Massachusetts at Amherst.

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