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The Eurosystem’s asset purchase programme and TARGET balances

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  • Eisenschmidt, Jens
  • Kedan, Danielle
  • Schmitz, Martin
  • Adalid, Ramón
  • Papsdorf, Patrick

Abstract

TARGET balances have risen during the period of the Eurosystem’s asset purchase programme (APP). The APP gives rise to substantial cross-border flows of reserves at the time of asset purchases and beyond, reflecting the interaction of decentralised monetary policy implementation and the integrated euro area financial structure. This financial structure, in which only a handful of locations act as gateways between the euro area and the rest of the world, leads to rising TARGET balances at the time of APP purchases and the persistence of TARGET balances in the context of subsequent portfolio rebalancing. TARGET balances per se are not necessarily an indicator of stress in bank funding markets, financial market fragmentation or unsustainable balance of payments developments. JEL Classification: E58, G02, F32

Suggested Citation

  • Eisenschmidt, Jens & Kedan, Danielle & Schmitz, Martin & Adalid, Ramón & Papsdorf, Patrick, 2017. "The Eurosystem’s asset purchase programme and TARGET balances," Occasional Paper Series 196, European Central Bank.
    • Handle: RePEc:ecb:ecbops:2017196
    Note: 2696070
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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. TARGET2 Balances Mask Reduced Financial Fragmentation in the Euro Area
      by Steve Cecchetti and Kim Schoenholtz in Money, Banking and Financial Markets on 2018-07-09 12:49:07

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    Cited by:

    1. Moro, Beniamino, 2019. "Interpreting TARGET balances in the European Monetary Union: A critical review of the literature," The North American Journal of Economics and Finance, Elsevier, vol. 50(C).
    2. Bofinger, Peter & Feld, Lars P. & Schmidt, Christoph M. & Schnabel, Isabel & Wieland, Volker, 2018. "Vor wichtigen wirtschaftspolitischen Weichenstellungen. Jahresgutachten 2018/19 [Setting the Right Course for Economic Policy. Annual Report 2018/19]," Annual Economic Reports / Jahresgutachten, German Council of Economic Experts / Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung, volume 127, number 201819.
    3. Kedan, Danielle & Veghazy, Alexia Ventula, 2021. "The implications of liquidity regulation for monetary policy implementation and the central bank balance sheet size: an empirical analysis of the euro area," Working Paper Series 2515, European Central Bank.
    4. Martin Hellwig, 2019. "Target-Falle oder Empörungsfalle? – Zur deutschen Diskussion um die Europäische Währungsunion," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2019_05, Max Planck Institute for Research on Collective Goods.
    5. Chiara Perillo & Stefano Battiston, 2020. "Financialization and unconventional monetary policy: a financial-network analysis," Journal of Evolutionary Economics, Springer, vol. 30(5), pages 1385-1428, November.
    6. Girotti, Mattia & Horny, Guillaume, 2023. "Monetary policy transmission through banks when liquidity is abundant but unevenly distributed," Finance Research Letters, Elsevier, vol. 56(C).
    7. Jan Kakes & Jan Willem van den End, 2023. "Identifying financial fragmentation: do sovereign spreads in the EMU reflect differences in fundamentals?," Working Papers 778, DNB.
    8. Hristov, Nikolay & Hülsewig, Oliver & Wollmershäuser, Timo, 2020. "Capital flows in the euro area and TARGET2 balances," Journal of Banking & Finance, Elsevier, vol. 113(C).
    9. Katharina Bergant & Michael Fidora & Martin Schmitz, 2020. "International Capital Flows at the Security Level – Evidence from the ECB’s Asset Purchase Programme," IMF Working Papers 2020/046, International Monetary Fund.
    10. Valerio Della Corte & Stefano Federico & Enrico Tosti, 2018. "Unwinding external stock imbalances? The case of Italy�s net international investment position," Questioni di Economia e Finanza (Occasional Papers) 446, Bank of Italy, Economic Research and International Relations Area.
    11. Krahnen, Jan Pieter, 2018. "Über Scheinriesen: Was TARGET-Salden tatsächlich bedeuten. Eine finanzökonomische Überprüfung," SAFE White Paper Series 56, Leibniz Institute for Financial Research SAFE.
    12. Demiralp, Selva & Eisenschmidt, Jens & Vlassopoulos, Thomas, 2021. "Negative interest rates, excess liquidity and retail deposits: Banks’ reaction to unconventional monetary policy in the euro area," European Economic Review, Elsevier, vol. 136(C).
    13. Fabiani, Josefina & Fidora, Michael & Setzer, Ralph & Westphal, Andreas & Zorell, Nico, 2021. "Sudden stops and asset purchase programmes in the euro area," Working Paper Series 2597, European Central Bank.
    14. Baldo, Luca & Hallinger, Benoît & Helmus, Caspar & Herrala, Niko & Martins, Débora & Mohing, Felix & Petroulakis, Filippos & Resinek, Marc & Vergote, Olivier & Usciati, Benoît & Wang, Yizhou, 2017. "The distribution of excess liquidity in the euro area," Occasional Paper Series 200, European Central Bank.
    15. Eisenschmidt, Jens & Kedan, Danielle & Schmitz, Martin, 2022. "Euro area monetary policy and TARGET balances: a trilogy," Working Paper Series 2750, European Central Bank.
    16. Fagan, Gabriel & McNelis, Paul D., 2020. "Sudden stops in the Euro Area: Does monetary union matter?," Journal of International Money and Finance, Elsevier, vol. 108(C).
    17. Boucinha, Miguel & Burlon, Lorenzo & Corsi, Marco & della Valle, Guido & Eisenschmidt, Jens & Pool, Sebastiaan & Schumacher, Julian & Vergote, Olivier & Marmara, Iwona, 2022. "Two-tier system for remunerating excess reserve holdings," Occasional Paper Series 302, European Central Bank.
    18. Bergant, Katharina & Fidora, Michael & Schmitz, Martin, 2018. "International capital flows at the security level � evidence from the ECB�s asset purchase programme," ECMI Papers 13926, Centre for European Policy Studies.
    19. Cheung, Yin-Wong & Steinkamp, Sven & Westermann, Frank, 2020. "Capital flight to Germany: Two alternative measures," Journal of International Money and Finance, Elsevier, vol. 102(C).
    20. Minenna, Marcello, 2022. "Target 2 determinants: The role of Balance of Payments imbalances in the long run," Journal of Banking & Finance, Elsevier, vol. 140(C).
    21. Bofinger, Peter & Schnabel, Isabel & Feld, Lars P. & Schmidt, Christoph M. & Wieland, Volker, 2017. "Für eine zukunftsorientierte Wirtschaftspolitik. Jahresgutachten 2017/18 [Towards a Forward-Looking Economic Policy. Annual Report 2017/18]," Annual Economic Reports / Jahresgutachten, German Council of Economic Experts / Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung, volume 127, number 201718.
    22. Timmer , Yannick, 2015. "TARGET2 balances and the adjustment of capital flows in the Euro area," European Economic Letters, European Economics Letters Group, vol. 4(1), pages 15-19.
    23. Chmielewski Tomasz & Sławiński Andrzej, 2019. "Lessons from TARGET2 imbalances: The case for the ECB being a lender of last resort," Economics and Business Review, Sciendo, vol. 5(2), pages 48-63, June.
    24. Rostagno, Massimo & Altavilla, Carlo & Carboni, Giacomo & Lemke, Wolfgang & Motto, Roberto & Saint Guilhem, Arthur & Yiangou, Jonathan, 2019. "A tale of two decades: the ECB’s monetary policy at 20," Working Paper Series 2346, European Central Bank.
    25. Stefan Avdjiev & Mary Everett & Hyun Song Shin, 2019. "Following the imprint of the ECB's asset purchase programme on global bond and deposit flows," BIS Quarterly Review, Bank for International Settlements, March.

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    More about this item

    Keywords

    asset purchase programme; balance of payments; excess liquidity; financial structure; TARGET2;
    All these keywords.

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements

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