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

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  • 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 Group, 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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    Cited by:

    1. Apergis, Emmanuel & Apergis, Iraklis & Apergis, Nicholas, 2019. "A new macro stress testing approach for financial realignment in the Eurozone," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 61(C), pages 52-80.
    2. 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.
    3. George Economides & Dimitris Papageorgiou & Apostolis Philippopoulos, 2020. "Macroeconomic Policy Lessons for Greece from the Debt Crisis," CESifo Working Paper Series 8188, CESifo.

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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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