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Editor's Choice TARGET2: How Costly is Buying Time?

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Listed:
  • Alexander Erler
  • Stefan Hohberger

Abstract

The article assesses the real costs and profits of German claims on the Eurosystem through TARGET2. While Germany’s nominal profits from holding TARGET2 claims depend on the development of the nominal interest rate, the real profits are determined by the real interest rate as well as the real exchange rate. The article finds that at the end of 2014, Germany faced current costs of approximately EUR 17 billion in real terms. Calculating the costs and profits of every member country in the euro area reveals that the TARGET2 system mirrors an implicit distribution mechanism, with a volume of approximately EUR 40 billion. The results underline the aspect that even without a euro area breakup or exit of one member country, holding TARGET2 claims can cause high economic costs in real terms. (JEL codes: E42, E44, F32)

Suggested Citation

  • Alexander Erler & Stefan Hohberger, 2016. "Editor's Choice TARGET2: How Costly is Buying Time?," CESifo Economic Studies, CESifo, vol. 62(3), pages 491-505.
  • Handle: RePEc:oup:cesifo:v:62:y:2016:i:3:p:491-505.
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    File URL: http://hdl.handle.net/10.1093/cesifo/ifv028
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    References listed on IDEAS

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    1. Martina Cecioni & Giuseppe Ferrero, 2012. "Determinants of TARGET2 imbalances," Questioni di Economia e Finanza (Occasional Papers) 136, Bank of Italy, Economic Research and International Relations Area.
    2. Hailong Jin & E. Kwan Choi, 2013. "China's Profits and Losses from Currency Intervention, 1994-2011," CESifo Working Paper Series 4551, CESifo Group Munich.
    3. Thomas Mayer & Jochen Möbert & Christian Weistroffer, 2012. "Macroeconomic Imbalances in EMU and the Eurosystem," CESifo Forum, Ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 13(SPECIALIS), pages 35-42, February.
    4. Raphael A. Auer, 2014. "What drives TARGET2 balances? Evidence from a panel analysis," Economic Policy, CEPR;CES;MSH, vol. 29(77), pages 139-197, January.
    5. Ulrich Bindseil & Philipp Johann König, 2012. "TARGET2 and the European Sovereign Debt Crisis," Credit and Capital Markets, Credit and Capital Markets, vol. 45(2), pages 135-174.
    6. Philippine Cour-Thimann, 2013. "CESifo Forum Special Issue April 2013: Target Balances and the Crisis in the Euro Area," CESifo Forum, Ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 0, pages 05-50, 05.
    7. Christian Bauer & Bernhard Herz & Alexandra Hild, 2011. "Structured Eurobonds," Research Papers in Economics 2011-09, University of Trier, Department of Economics.
    8. Jin, Hailong & Choi, E. Kwan, 2013. "Profits and losses from currency intervention," International Review of Economics & Finance, Elsevier, vol. 27(C), pages 14-20.
    9. Alexandra M.D. Hild & Bernhard Herz & Christian Bauer, 2014. "Structured Eurobonds: Limiting Liability and Distributing Profits," Journal of Common Market Studies, Wiley Blackwell, vol. 52(2), pages 250-267, March.
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    More about this item

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements

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