scholarly journals TARGET2 imbalances: causes, assessments and consequences

2020 ◽  
Vol 15 (1) ◽  
pp. 107-117
Author(s):  
Michael Menrad
Keyword(s):  
Central Bank ◽  
Euro Area ◽  
Central Banks ◽  
Inflation Expectations ◽  
Problem Solution ◽  
Quantitative Easing ◽  
Government Bonds ◽  
European Central ◽  
Critical Situation ◽  
Market Intervention

This research aims to enrich the literature on the threatening topic of Target2 imbalances in the euro area. Using a quantitative time series analysis, the paper examines and discusses the development of Target2 imbalances and the interrelationships of the European Central Bank (ECB) activities through market intervention using quantitative easing. This paper outlines the scope of central bank activities in different Eurozone countries and examines how individual debtor and creditor countries, as well as central banks, will continue to operate. In this context it examines whether the ECB is working on a problem solution, and what are the risks posed by Target2 imbalances for the euro area, as well as whether the euro is volatile and how the Target2 imbalances will be managed if the euro breaks. This research highlights the ambiguity of central bank activities, explains the burdens and risks of Germany as the largest creditor, shows solutions through the communitization or the creation of Target3 to correct past mistakes and to prevent a further and more severe global crisis. Attention is drawn to the fact that Italy could put the Eurozone in a critical situation by introducing mini-BOTs (small government bonds; “titoli di Stato di piccolo taglio”) as the second currency. Furthermore, it is pointed out that the ECB has adjusted its price stability objectives to raise inflation expectations in the Eurozone, which is unlikely to satisfy Target2 demanding countries.

scholarly journals Monetary Policy and Euro Area Governance in the EMU

2018 ◽  
Author(s):  
Herwig C H Hofmann
Keyword(s):  
Monetary Policy ◽  
Central Bank ◽  
Monetary Union ◽  
Euro Area ◽  
European Central Bank ◽  
Central Banks ◽  
Single Currency ◽  
Diverse Range ◽  
European Central ◽  
The Eu

One of the European Union’s most ambitious policy projects to date is the ‘economic and monetary union whose currency is the euro’ (EMU, Article 3(4) TEU). The EMU’s two polices—the economic union and the monetary union—are an unequal set of twins. On one hand, the monetary union’s central elements are well developed: as an element of substance, the introduction of the euro as a single currency; as an institutional achievement, the creation of the European System of Central Banks (ESCB) together with the European Central Bank (ECB) on the EU level as a highly independent body having the power to adopt a diverse range of measures. Additionally, the Treaties contain specific provisions on the goals and principles of monetary policy.

scholarly journals How the European Central Bank and Other Independent Agencies Reveal a Gap in Constitutionalism: A Spectrum of Institutions for Commitment

2021 ◽  
Vol 22 (6) ◽  
pp. 999-1027
Author(s):  
Paul Tucker
Keyword(s):  
Central Bank ◽  
Euro Area ◽  
European Central Bank ◽  
Central Banks ◽  
Liberal Democracies ◽  
Fiat Money ◽  
European Central ◽  
Economic Actor ◽  
Monetary Independence

AbstractToday’s central banks wield extraordinary powers, both monetary and regulatory, and with a capacity to substitute for elected governments tempted to pass the buck. Debates about central banking’s powers and legitimacy barely touch, however, on whether and how monetary independence fits with the values that drive constitutionalism. It turns out that, for modern economies using fiat money, independence is a corollary of the higher level separation of (fiscal) powers between the legislative and executive branches. Even though independence is necessary, it needs to be carefully constrained by a “money-credit constitution.” Those general arguments, applicable in liberal democracies, do not carry across cleanly to the euro area. A principled case can be made for the ECB’s mandate being specially tight, but that is in tension with its de facto role as the emergency economic actor for the euro area. Facing up to that will be necessary sooner or later.

scholarly journals Gravity Among Central Bank Balance Sheets: Monetary Policy Spill-Over on FX Volatility

2020 ◽  
Vol 5 (1) ◽  
pp. 33-57
Author(s):  
Gábor Dávid Kiss ◽  
Mercédesz Mészáros
Keyword(s):  
Monetary Policy ◽  
Central Bank ◽  
Relative Size ◽  
Reducing Power ◽  
Central Banks ◽  
Gravity Models ◽  
Quantitative Easing ◽  
Subprime Crisis ◽  
European Central ◽  
Bank Balance Sheets

AbstractFollowing the subprime crisis, most of the European central banks implemented several unconventional monetary instruments. As a result of the late quantitative easing, there was a shift from stimulating lending to the immediate stimulation of the securities market in the monetary policy of the European Central Bank (ECB) and of the smaller central banks, too. These securities purchase programs, first and second-market transactions, and asset purchases have led to an increase in the stock of securities held by the central banks, whose spill-over effects have not been fully explored yet. The aim of our research is to identify the spill-over effects of the central banks’ unconventional instruments and quantitative easing on currency volatility while considering the relative size of the issuing central bank and the situation of small open economies. By running an adapted version of gravity models, we analyzed a sample of six European central banks and the ECB. Based on our results, the high volatility levels of European currencies around the eurozone have come from their relative smallness and unconventional monetary policy, and considerations about safe havens have a reducing power on F X volatility.

Strategy in Action

2021 ◽  
pp. 109-164
Author(s):  
Massimo Rostagno ◽  
Carlo Altavilla ◽  
Giacomo Carboni ◽  
Wolfgang Lemke ◽  
Roberto Motto ◽  
...  
Keyword(s):  
Financial Crisis ◽  
Central Bank ◽  
Euro Area ◽  
European Central Bank ◽  
Policy Framework ◽  
Inflation Expectations ◽  
Demand Shocks ◽  
European Central ◽  
Supply Shocks

The policy framework of the European Central Bank (ECB) attracted both bouquets and brickbats in the pre-crisis era. This chapter aims to assess those arguments with hindsight: was policy successful in delivering the objective or was it instead ‘inattentive’, as some critics at the time claimed? We argue that the euro area economy faced a series of inflationary supply shocks and the policy framework was helpful in those conditions. The perceived asymmetry of the inflation objective—with a hard ‘ceiling’ at 2%—allowed automatic adjustments in underlying conditions, including inflation expectations, to do a large part of the stabilization job. However, we show that this self-stabilizing mechanism also admits a second regime: if the economy enters a situation where negative demand shocks dominate, the ‘ceiling’ ceases to bind and act as a stabilizer, leading inflation to drift downwards. We contend that the ECB may have entered such a regime after the financial crisis.

scholarly journals The efficiency of monetary policy instruments of the European Central Bank in liquidity regulating in euro area

Equilibrium ◽  
2010 ◽  
Vol 5 (2) ◽  
pp. 195-208
Author(s):  
Ilona Pietryka
Keyword(s):  
Monetary Policy ◽  
Central Bank ◽  
Euro Area ◽  
European Central Bank ◽  
Banking System ◽  
Policy Instruments ◽  
Central Banks ◽  
European Central

Mechanism of forming of liquidity level of national central banks participating in ESCB is clear. It is based on centralized and decentralized operations. The ECB decides on the direction of monetary policy, and the national central banks implement monetary policy taking into account those guidelines as well as the conditions of their country. The aim of the paper is to estimate the efficiency of the EBC monetary policy in regulating the liquidity of the banking system in euro area. The aim was achieved by characterizing the organizational and balance relationship banks of the Eurosystem because of this regulation. Special accent was placed on monetary policy instruments, which are created by national central banks and they form liquidity of the euro area.

scholarly journals The European Central Bank

2020 ◽  
Author(s):  
Amy Verdun
Keyword(s):  
Financial Crisis ◽  
Central Bank ◽  
Political Science ◽  
Euro Area ◽  
European Central Bank ◽  
Central Banks ◽  
The Political ◽  
Science Literature ◽  
European Central

The European Central Bank (ECB) has been in existence for almost 20 years and more if one considers its immediate predecessor the European Monetary Institute (1994–1997). During these two decades the ECB has become an established institution. It secures price stability and further increased its reputation as a lender of last resort during the financial crisis and its aftermath. In the 2010s, in response to the global financial crisis and the sovereign debt crisis, the ECB has also taken on the role of supervisor of the financial system and monitors developments in the Euro Area financial sector. Political science literature on the ECB can be subdivided into different strands. One strand looks at the ECB as just another central bank and hence examines its role as a central bank with the usual instruments. Another strand of literature examines the role of the ECB as an institution that is insufficiently embedded into democratic checks and balances. This perennial criticism of the ECB was born when the European System of Central Banks (ESCB) was created to be independent from political influence. A third strand of the literature is newer and examines the unorthodox steps that the ECB (and other central banks) took, and have taken, to offset the financial crisis and the ensuing economic crisis. An analysis of European integration and the political economy of the Euro Area can contribute to a better understanding of why the ECB has taken a proactive role. The political science research of the ECB is discussed here as well as the various dimensions of research conducted on the ECB.

The ECB’s quantitative easing programme as a constitutional game changer

2019 ◽  
Vol 26 (1) ◽  
pp. 94-107
Author(s):  
Klaus Tuori
Keyword(s):  
Monetary Policy ◽  
Public Sector ◽  
Central Bank ◽  
Euro Area ◽  
European Central Bank ◽  
Central Banking ◽  
Quantitative Easing ◽  
Member States ◽  
The Public ◽  
European Central

The European Central Bank started its quantitative easing programme in 2015 in order to support euro area financial conditions and ultimately increase inflation. The controversial Public Sector Purchase programme has resulted in central bank purchases of government bonds in the magnitude of €2.1 trillion and the Eurosystem (the European Central Bank and the national central banks) become the largest creditor to the euro area Member States. The constitutional framework of the European Central Bank did foresee such a programme, which also makes it potentially problematic for the European Central Bank’s accountability. The underlying source for constitutional concerns is the European Central Bank’s exceptional independence, which could be justified with a narrow central banking model, but becomes problematic when the European Central Bank’s influence on the society becomes more multifaceted, which blurs the borderlines between monetary policy and other economic policies. The specific constitutional concerns related to the Public Sector Purchase programme and accountability are highlighted by three claims: (a) With the Public Sector Purchase programme, the European Central Bank takes deeper inroads to the society than with traditional monetary policy; (b) Through the Public Sector Purchase programme, the European Central Bank became the largest creditor to Member States it was not allowed to finance; and (c) The Public Sector Purchase programme can lead to conflicts between the price stability objective and financial stability.

Dramatis Institutiones

2017 ◽  
Author(s):  
C. Randall Henning
Keyword(s):  
European Union ◽  
Central Bank ◽  
International Monetary Fund ◽  
Euro Area ◽  
European Central Bank ◽  
The European Union ◽  
European Central ◽  
Regime Complex ◽  
Basic Facts ◽  
Institutional Conflict

The regime complex for crisis finance in the euro area included the European Council, Council of the European Union, and Eurogroup in addition to the three institutions of the troika. As the member states acted largely, though not exclusively, through the council system, these bodies stood at the center of the institutional mix. This chapter reviews the institutions as a prelude to examining the dilemmas that confronted them over the course of the crises. It presents a brief review of some of the basic facts about their origins, membership, and organization. Each section then delves more deeply into these institutions’ governance and principles to understand their capabilities and strategic challenges. As a consequence of different mandates and design, the European Commission, European Central Bank, and International Monetary Fund diverged with respect to their approach to financing, adjustment, conditionality, and debt sustainability. This divergence set the stage for institutional conflict in the country programs.

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