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Explosive Target Balances

Author

Listed:
  • Niklas Potrafke
  • Markus Reischmann

Abstract

Using the new unit root test by Phillips et al. (2011) we show that the Target balances of the German Bundesbank have been exploding from the beginning of 2009 to the beginning of 2013. By implementing a full-allotment policy and reducing the required minimum quality of collaterals in October 2008, the European Central Bank (ECB) refinanced credits in the GIIPS countries to a large extent. Private capital flowed out of the GIIPS countries (Greece, Italy, Ireland, Portugal and Spain), and the Target claims of the German Bundesbank increased significantly. If the Eurozone collapses, the German Bundesbank would lose its Target claims. Because the German Bundesbank would certainly request a recapitalization from the German federal government, German government debt might increase.

Suggested Citation

  • Niklas Potrafke & Markus Reischmann, 2013. "Explosive Target Balances," CESifo Working Paper Series 4297, CESifo.
    • Handle: RePEc:ces:ceswps:_4297
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    References listed on IDEAS

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    4. John Y. Campbell & Pierre Perron, 1991. "Pitfalls and Opportunities: What Macroeconomists Should Know about Unit Roots," NBER Chapters, in: NBER Macroeconomics Annual 1991, Volume 6, pages 141-220, National Bureau of Economic Research, Inc.
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    8. Hans-Werner Sinn, 2013. "Die Target-Verluste im Fall des Auseinanderbrechens des Euro – Eine Replik auf De Grauwe und Ji," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 66(01), pages 14-24, January.
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    13. Giammarioli, Nicola & Nickel, Christiane & Rother, Philipp & Vidal, Jean-Pierre, 2007. "Assessing fiscal soundness: theory and practice," Occasional Paper Series 56, European Central Bank.
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    17. Philippine Cour-Thimann, 2013. "CESifo Forum Special Issue April 2013: Target Balances and the Crisis in the Euro Area," CESifo Forum, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 0(1), pages 05-50, May.
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    22. Nicola Giammarioli & Christiane Nickel & Philipp Rother & Jean-Pierre Vidal, 2007. "Assessing fiscal soundness - Theory and practice," Occasional Paper Series 56, European Central Bank.
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    Cited by:

    1. Nicole Storp & Tobias Kordsmeyer, 2019. "Zeitreihenanalyse zu den Target-Forderungen der Deutschen Bundesbank und mögliche Zusammenhänge mit der expansiven Geldpolitik der EZB," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 72(06), pages 26-28, March.
    2. Frank Westermann, 2014. "Discussion of "Target2 and Central Bank Balance Sheets"," IEER Working Papers 99, Institute of Empirical Economic Research, Osnabrueck University.

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    More about this item

    Keywords

    Eurosystem; Target; recursive unit root test; explosiveness; hidden debt;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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