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Understanding the German criticism of the Target system and the role of central bank capital

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  • Perotti, Roberto

Abstract

Criticism of the Target system by a group of central European scholars has become a widespread argument against the policies of the European Central Bank and even the integrity of the monetary union, and even standard fare in the media and in the political debate in Germany. Most academics and practitioners that have participated in the debate have been dismissive of the German preoccupations. In this paper, I first try and clarify the many remaining misunderstandings about the workings and implications of the Target system. I propose a unified, systematic and simple approach to the study of the workings of the Target system in response to different shocks and in comparison with different alternative regimes. I then argue that the German criticism of the Target system is not so unfounded after all, and should be taken seriously, both on theoretical grounds and for its political implications.

Suggested Citation

  • Perotti, Roberto, 2020. "Understanding the German criticism of the Target system and the role of central bank capital," CEPR Discussion Papers 15067, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:15067
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    References listed on IDEAS

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    1. Clemens Fuest & Hans-Werner Sinn, 2018. "Target Risks without Euro Exits," CESifo Forum, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 19(04), pages 36-45, December.
    2. Gustavo Adler & Pedro Castro & Camilo Tovar, 2016. "Does Central Bank Capital Matter for Monetary Policy?," Open Economies Review, Springer, vol. 27(1), pages 183-205, February.
    3. Mr. Peter Stella, 1997. "Do Central Banks Need Capital?," IMF Working Papers 1997/083, International Monetary Fund.
    4. Mr. Peter Stella, 2008. "Central Bank Financial Strength, Policy Constraints and Inflation," IMF Working Papers 2008/049, International Monetary Fund.
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    Cited by:

    1. Marco Bassetto & Gherardo Gennaro Caracciolo, 2021. "Monetary/Fiscal Interactions with Forty Budget Constraints," Working Papers 788, Federal Reserve Bank of Minneapolis.
    2. Sergio Cesaratto, 2022. "Le frontiere della politica monetaria: aspetti didattici, teorici, di politica economica. Un review article (The frontiers of monetary policy: didactic, theoretical, economic policy aspects. A review ," Moneta e Credito, Economia civile, vol. 75(299), pages 353-373.
    3. Economides, George & Papageorgiou, Dmitris & Philippopoulos, Apostolis, 2020. "Macroeconomic policy lessons from Greece," LSE Research Online Documents on Economics 107155, London School of Economics and Political Science, LSE Library.
    4. George Economides & Dimitris Papageorgiou & Apostolis Philippopoulos, 2021. "Austerity, Assistance and Institutions: Lessons from the Greek Sovereign Debt Crisis," Open Economies Review, Springer, vol. 32(3), pages 435-478, July.
    5. Vasiliki Dimakopoulou & George Economides & Apostolis Philippopoulos, 2021. "The ECB's Policy, the Recovery Fund and the Importance of Trust: The Case of Greece," CESifo Working Paper Series 9371, CESifo.

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    More about this item

    Keywords

    Target2 system; European monetary union; Central bank capital;
    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
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions

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