Understanding the German Criticism of the Target System and the Role of Central Bank Capital

43 Pages Posted: 4 Aug 2020

See all articles by Roberto Perotti

Roberto Perotti

Bocconi University - Department of Economics; European University Institute - Economics Department (ECO); Centre for Economic Policy Research (CEPR)

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Date Written: July 2020

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.

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Suggested Citation

Perotti, Roberto, Understanding the German Criticism of the Target System and the Role of Central Bank Capital (July 2020). NBER Working Paper No. w27627, Available at SSRN: https://ssrn.com/abstract=3665898

Roberto Perotti (Contact Author)

Bocconi University - Department of Economics ( email )

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Milan, 20136
Italy

European University Institute - Economics Department (ECO) ( email )

Villa San Paolo
Via della Piazzuola 43
50133 Florence
Italy

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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