Capital flows in the euro area and TARGET2 balances

Nikolay Hristov, Oliver Hülsewig and Timo Wollmershäuser

No 24/2019, Discussion Papers from Deutsche Bundesbank

Abstract: 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.

Keywords: Euro area; TARGET2 balances; capital in flow shocks; panel vector autoregressive model (search for similar items in EconPapers)
JEL-codes: E42 F32 F41 F45 (search for similar items in EconPapers)
Date: 2019
New Economics Papers: this item is included in nep-eec, nep-mac and nep-mon
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Citations: View citations in EconPapers (4)

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https://www.econstor.eu/bitstream/10419/201007/1/1670203484.pdf (application/pdf)

Related works:
Journal Article: Capital flows in the euro area and TARGET2 balances (2020)
Working Paper: Capital flows in the euro area and TARGET2 balances (2020)
Working Paper: Capital Flows in the Euro Area and TARGET2 Balances (2018)
Working Paper: Capital Flows in the Euro Area and TARGET2 Balances (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:bubdps:242019

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