Capital flows in the euro area and TARGET2 balances

Arbeitspapier

We estimate a panel VAR model for the euro area to quantitatively assess how the uneven recourse of national banking systems in the euro area to the ECB's unconventional refinancing operations that led to the accumulation of large TARGET2 balances, has contributed to the propagation of different types of structural economic shocks as well as to the historical evolution of aggregate economic activity in euro area member countries in the period 2008-2014. Our results suggest that the built-up of TARGET2 balances was mainly driven by capital flow shocks while being barely responsive to other aggregate shocks. Furthermore, on basis of counterfactual experiments we find that the ability to build-up sizable TARGET2 liabilities has contributed substantially to avoid deeper recessions in the distressed euro area member countries like Spain, Italy, Ireland and Portugal, while to a smaller extent depressing aggregate economic activity in core member states, such as Germany, the Netherlands and Finland.

Object Details

• ISBN: 978-3-95729-602-3
• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Deutsche Bundesbank Discussion Paper ; No. 24/2019

Classification and Topics

• Classification: Wirtschaft ; Monetary Systems; Standards; Regimes; Government and the Monetary System; Payment Systems ; Current Account Adjustment; Short-term Capital Movements ; Open Economy Macroeconomics ; Macroeconomic Issues of Monetary Unions
• Subject: Euro area ; TARGET2 balances ; capital in flow shocks ; panel vector autoregressive model

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Hristov, Nikolay ; Hülsewig, Oliver ; Wollmershäuser, Timo
• Event: Veröffentlichung
• (who): Deutsche Bundesbank
• (where): Frankfurt a. M.
• (when): 2019

Further information

• Handle: http://hdl.handle.net/10419/201007
• Last update: 10.03.2025, 11:44 AM CET