Determinants of TARGET2 imbalances
AbstractThe 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 InfoPaper provided by Bank of Italy, Economic Research and International Relations Area in its series Questioni di Economia e Finanza (Occasional Papers) with number 136.
Date of creation: Sep 2012
Date of revision:
payment system; financial crisis; monetary policy;
Find related papers by JEL classification:
- E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-11-24 (All new papers)
- NEP-CBA-2012-11-24 (Central Banking)
- NEP-EEC-2012-11-24 (European Economics)
- NEP-MAC-2012-11-24 (Macroeconomics)
- NEP-MON-2012-11-24 (Monetary Economics)
- NEP-OPM-2012-11-24 (Open Economy Macroeconomic)
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