What Does It Take? Quantifying Cross-Country Transfers in the Eurozone

YiLi Chien, Zhengyang Jiang (), Matteo Leombroni () and Hanno Lustig
Additional contact information
Zhengyang Jiang: https://www.kellogg.northwestern.edu/faculty/directory/jiang_zhengyang.aspx
Matteo Leombroni: https://www.bc.edu/bc-web/schools/carroll-school/faculty-research/faculty-directory/matteo-leombroni.html

No 2025-024, Working Papers from Federal Reserve Bank of St. Louis

Abstract: We measure the cross-country transfers that result from unconventional monetary policy in the Eurozone. The ECB funds its balance sheet expansion mostly by issuing bank reserves and cash in core countries. The national central banks (NCBs) in periphery countries then borrow from the core NCBs at below-market rates, and use these funds to finance asset purchases and bank lending. This arrangement exposes taxpayers in core countries to credit and currency risk without corresponding compensation. By comparing the cross-country distribution of NCB income to a counterfactual scenario without non-marketable intra-Eurozone claims, we document significant and persistent cross-country transfers in the Target2 system.

Keywords: unconventional monetary policy; financial repression; monetary union; Target2 (search for similar items in EconPapers)
JEL-codes: E42 E52 F33 G15 (search for similar items in EconPapers)
Pages: 75 pages
Date: 2025-09-22, Revised 2026-05-28
New Economics Papers: this item is included in nep-cba, nep-eec, nep-mon and nep-opm
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DOI: 10.20955/wp.2025.024

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