Explosive Target Balances

15 Pages Posted: 28 Jun 2013

See all articles by Niklas Potrafke

Niklas Potrafke

CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute

Markus Reischmann

CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute

Date Written: June 27, 2013

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.

Keywords: Eurosystem, Target, recursive unit root test, explosiveness, hidden debt

JEL Classification: C220, E500, E580, F320, F340, H630

Suggested Citation

Potrafke, Niklas and Reischmann, Markus, Explosive Target Balances (June 27, 2013). CESifo Working Paper Series No. 4297, Available at SSRN: https://ssrn.com/abstract=2286075

Niklas Potrafke (Contact Author)

CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute ( email )

Poschinger Str. 5
Munich, 01069
Germany

Markus Reischmann

CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute ( email )

Poschinger Str. 5
Munich, 01069
Germany

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