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Determinants of TARGET2 imbalances

  • Martina Cecioni

    ()

    (Banca d'Italia)

  • Giuseppe Ferrero

    ()

    (Banca d'Italia)

The 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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File URL: http://www.bancaditalia.it/pubblicazioni/qef/2012-0136/QEF_136.pdf
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Paper provided by Bank of Italy, Economic Research and International Relations Area in its series Questioni di Economia e Finanza (Occasional Papers) with number 136.

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Date of creation: Sep 2012
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Handle: RePEc:bdi:opques:qef_136_12
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Web page: http://www.bancaditalia.it

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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, vol. 19(4), pages 468-508, August.
  2. Jens Ulbrich & Alexander Lipponer, 2012. "Balances in the Target2 Payments System – A Problem?," CESifo Forum, Ifo Institute for Economic Research at the University of Munich, vol. 13(SPECIALIS), pages 73-76, 02.
  3. Silvia Merler & Jean Pisani-Ferry, 2012. "Sudden stops in the euro area," Policy Contributions 718, Bruegel.
  4. Ulrich Bindseil & Philippine Cour-Thimann & Philipp König, 2012. "Target2 and Cross-border Interbank Payments during the Financial Crisis," CESifo Forum, Ifo Institute for Economic Research at the University of Munich, vol. 13(SPECIALIS), pages 83-92, 02.
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