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A further view on current account, capital account and Target2 balances: Assessing the effect on capital structure and economic welfare

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  • Sell, Friedrich L.
  • Sauer, Beate

Abstract

In this paper, we first present the state and the development of the European capital and current account imbalances. We demonstrate how large the heterogeneity among European countries is and that clustering here different types of countries is possible, but that it leads to different groupings than what has been labeled the PIGS or better GIPS countries on the one side and the GLNF countries on the other side. The same applies when it comes to cluster countries according to the debt ratio criterion. Hereafter, we put forward our own description of the mentioned ECB implicit financing scheme(s), among other things extending and complementing the recent base money market (supply and demand) analysis given by H.-W. Sinn and T. Wollmershäuser (2011). The core of the paper consists in a modified model of the New Austrian School of Economics - in the tradition of F. A. v. Hayek (1929, 1931) and in the vein of R. M. Garrison (2002) - which enables us to discuss the current distortions introduced by the Target2 credit channel into the capital markets of selected EMU countries and to detect its most important economic consequences. This part of the paper ends with a static welfare evaluation. Finally, we come up with some conclusions and suggestions for economic policy. --

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Bibliographic Info

Paper provided by Universität der Bundeswehr München, Economic Research Group in its series Working Papers in Economics with number 2011,2.

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Date of creation: 2011
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Handle: RePEc:zbw:ubwwpe:20112

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Keywords: Target2 balances; current account deficits; ECB monetary policy; New Austrian Economics;

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References

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  1. Hans-Werner Sinn & Timo Wollmershäuser, 2012. "Target loans, current account balances and capital flows: the ECB’s rescue facility," International Tax and Public Finance, Springer, Springer, vol. 19(4), pages 468-508, August.
  2. Abad, José M. & Löffler, Axel & Zemanek, Holger, 2011. "TARGET2 Unlimited: Monetary Policy Implications of Asymmetric Liquidity Management within the Euro Area," CEPS Papers, Centre for European Policy Studies 5904, Centre for European Policy Studies.
  3. Hans-Werner Sinn, 2010. "Rescuing Europe," CESifo Forum, Ifo Institute for Economic Research at the University of Munich, Ifo Institute for Economic Research at the University of Munich, vol. 11(SPECIALIS), pages 1-22, 08.
  4. Hans-Werner Sinn, 2011. "Target-Salden, Außenhandel und Geldschöpfung," Ifo Schnelldienst, Ifo Institute for Economic Research at the University of Munich, vol. 64(09), pages 23-25, 05.
  5. Van Marrewijk, Charles, 2012. "International Economics," OUP Catalogue, Oxford University Press, Oxford University Press, edition 2, number 9780199567096, October.
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Cited by:
  1. Sauer, Beate & Sell, Friedrich L., 2013. "Is the Eurozone not a monetary union, but an extraordinary exchange rate union?," Working Papers in Economics 2013,2, Universität der Bundeswehr München, Economic Research Group.
  2. Friedrich L. Sell & Beate Sauer, 2011. "Geld-, Kapitalmärkte und Wohlfahrt: Eine Wirkungsanalyse der Target2-Salden," Ifo Schnelldienst, Ifo Institute for Economic Research at the University of Munich, vol. 64(16), pages 51-57, 09.
  3. Friedrich L. Sell & Beate Sauer, 2012. "Money, Capital Markets and Welfare: An Analysis of the Effects of Target2 Balances," CESifo Forum, Ifo Institute for Economic Research at the University of Munich, Ifo Institute for Economic Research at the University of Munich, vol. 13(SPECIALIS), pages 55-62, 02.

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