IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/51124.html
   My bibliography  Save this paper

TARGET2 imbalances and the need for a lender of last resort

Author

Listed:
  • Astarita, Caterina
  • Purificato, Francesco

Abstract

This paper analyses the issue of the dynamics of the TARGET2 system balances during the sovereign debt crisis. The development of these balances reflects the change in the distribution of the monetary base among the EMU Member States. During the sovereign debt crisis, while some countries, among which Germany, registered a decisive inflow of monetary base, some others, as Italy, shown an outflow. The main conclusion of the paper is that the dynamics in TARGET2 is rather due to a fall in the level of confidence in the capacity of the EMU to survive than to disparities in the level of competitiveness among countries of the Eurozone as a part of the literature maintained. In turn, this crisis of confidence has to be considered as the consequence of the implicit refusal of the European institutions of creating a mechanism working as “lender of last resort” for the Eurozone Member States. Two elements, in particular, support this thesis. On the one hand, most of the monetary base outflow occurred in coincidence with those political decisions which determined deterioration in the expectation about the degree of solvency of the periphery countries. On the other hand, the fiscal consolidation that the periphery countries implemented destabilized the economy as a result of a negative conjuncture and a monetary policy ineffective in reducing the interest rate.

Suggested Citation

  • Astarita, Caterina & Purificato, Francesco, 2013. "TARGET2 imbalances and the need for a lender of last resort," MPRA Paper 51124, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:51124
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/51124/1/MPRA_paper_51124.pdf
    File Function: original version
    Download Restriction: no

    References listed on IDEAS

    as
    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. Lawrence Christiano & Martin Eichenbaum & Sergio Rebelo, 2011. "When Is the Government Spending Multiplier Large?," Journal of Political Economy, University of Chicago Press, vol. 119(1), pages 78-121.
    3. Alan J. Auerbach & Yuriy Gorodnichenko, 2012. "Fiscal Multipliers in Recession and Expansion," NBER Chapters,in: Fiscal Policy after the Financial Crisis, pages 63-98 National Bureau of Economic Research, Inc.
    4. Jocelyn Boussard & Francisco de Castro & Matteo Salto, 2012. "Fiscal Multipliers and Public Debt Dynamics in Consolidations," European Economy - Economic Papers 2008 - 2015 460, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    5. 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.
    6. Carlo Panico & Francesco Purificato, 2013. "Policy coordination, conflicting national interests and the European debt crisis," Cambridge Journal of Economics, Oxford University Press, vol. 37(3), pages 585-608.
    7. Gauti B. Eggertsson & Paul Krugman, 2012. "Debt, Deleveraging, and the Liquidity Trap: A Fisher-Minsky-Koo Approach," The Quarterly Journal of Economics, Oxford University Press, vol. 127(3), pages 1469-1513.
    8. Philip Arestis, 2012. "Fiscal policy: a strong macroeconomic role," Review of Keynesian Economics, Edward Elgar Publishing, vol. 1(0), pages 93-108.
    9. Silvia Merler & Jean Pisani-Ferry, 2012. "Sudden Stops in the Euro Area," Review of Economics and Institutions, Università di Perugia, vol. 3(3).
    10. Buiter, Willem H. & Rahbari, Ebrahim, 2012. "Target2 Redux: The simple accountancy and slightly more complex economics of Bundesbank loss exposure through the Eurosystem," CEPR Discussion Papers 9211, C.E.P.R. Discussion Papers.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. C. Petraglia & F. Purificato, 2013. "Single currency and supranational constraints to fiscal policies in the Eurozone during the crisis," Rivista economica del Mezzogiorno, Società editrice il Mulino, issue 4, pages 1065-1094.
    2. Carlo Panico, Francesco Purificato, Elvira Sapienza, 2015. "Benefici, problemi e prospettive dell’integrazione monetaria in Europa (Benefits, issues and future of monetary integration in Europe)," Moneta e Credito, Economia civile, vol. 68(271), pages 305-339.
    3. Santiago Capraro & Carlo Panico & Ignacio Perrotini & Francesco Purificato, 2012. "Austerità o politiche coordinate ed espansive? Le difficili scelte delle autorità europee," STUDI ECONOMICI, FrancoAngeli Editore, vol. 2012(108), pages 81-112.

    More about this item

    Keywords

    payment system; monetary policy; fiscal policy; financial crisis;

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:51124. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Joachim Winter) or (Rebekah McClure). General contact details of provider: http://edirc.repec.org/data/vfmunde.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.