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Fiscal divergence, current account divergence and TARGET2 imbalances in the EMU

Author

Listed:
  • José Abad
  • Axel Löffler
  • Gunther Schnabl
  • Holger Zemanek

Abstract

Diverging fiscal policy paths, housing booms and diverging unit labour costs were driving forces of rising intra-European current account imbalances, which were underpinned by low interest rates. Since the outbreak of the crisis, the adjustment of intra-EMU current account imbalances has been postponed by a rising divergence of TARGET2 balances, as the repatriation of private international credit and deposit flight from the crisis economies is intermediated by central bank credit. Given that this process has brought the Deutsche Bundesbank into a debtor position to the domestic financial system, the article discusses options for liquidity absorption by the Bundesbank to forestall asset price bubbles in Germany. Copyright ZBW and Springer-Verlag Berlin Heidelberg 2013

Suggested Citation

  • José Abad & Axel Löffler & Gunther Schnabl & Holger Zemanek, 2013. "Fiscal divergence, current account divergence and TARGET2 imbalances in the EMU," Intereconomics: Review of European Economic Policy, Springer;German National Library of Economics;Centre for European Policy Studies (CEPS), vol. 48(1), pages 51-58, January.
  • Handle: RePEc:spr:intere:v:48:y:2013:i:1:p:51-58
    DOI: 10.1007/s10272-013-0444-0
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    Citations

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    Cited by:

    1. Gunther Schnabl, 2017. "The Failure of ECB Monetary Policy from a Mises-Hayek Perspective," CESifo Working Paper Series 6388, CESifo Group Munich.
    2. Schnabl, Gunther, 2017. "Monetary policy and wandering overinvestment cycles in East Asia and Europe," Working Papers 148, University of Leipzig, Faculty of Economics and Management Science.
    3. Unger, Robert, 2017. "Asymmetric credit growth and current account imbalances in the euro area," Journal of International Money and Finance, Elsevier, vol. 73(PB), pages 435-451.
    4. repec:kap:iecepo:v:15:y:2018:i:2:d:10.1007_s10368-017-0402-6 is not listed on IDEAS
    5. repec:eee:jimfin:v:79:y:2017:i:c:p:39-71 is not listed on IDEAS
    6. Raphael Fischer & Gunther Schnabl, 2018. "Regional heterogeneity, the rise of public debt and monetary policy in post-bubble Japan: lessons for the EMU," International Economics and Economic Policy, Springer, vol. 15(2), pages 405-428, April.
    7. repec:rfe:zbefri:v:36:y:2018:i:1:p:309-336 is not listed on IDEAS
    8. repec:kap:asiaeu:v:15:y:2017:i:4:d:10.1007_s10308-017-0490-5 is not listed on IDEAS
    9. Pablo Duarte & Gunther Schnabl, 2015. "Macroeconomic Policy Making, Exchange Rate Adjustment and Current Account Imbalances in Emerging Markets," Review of Development Economics, Wiley Blackwell, vol. 19(3), pages 531-544, August.
    10. Veronika Belousova & Nikolay Chichkanov, 2015. "Mobile Banking Adoption in Russia: What Incentives Matter?," HSE Working papers WP BRP 48/STI/2015, National Research University Higher School of Economics.
    11. Hoffmann, Andreas & Schnabl, Gunther, 2016. "Monetary policies of industrial countries, emerging market credit cycles and feedback effects," Journal of Policy Modeling, Elsevier, vol. 38(5), pages 855-873.
    12. repec:seb:journl:v:15:y:2017:i:2:p:147-174 is not listed on IDEAS
    13. Gunther Schnabl, 2015. "Monetary Policy and Structural Decline: Lessons from Japan for the European Crisis," Asian Economic Papers, MIT Press, vol. 14(1), pages 124-150, Winter/Sp.
    14. Boumparis, Periklis & Milas, Costas & Panagiotidis, Theodore, 2017. "Economic policy uncertainty and sovereign credit rating decisions: Panel quantile evidence for the Eurozone," Journal of International Money and Finance, Elsevier, vol. 79(C), pages 39-71.

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