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 compute the cross-country transfers that result from unconventional monetary policy in the Eurozone. The ECB funds the expansion of its aggregate balance sheet 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 to fund the asset purchases and bank lending. In addition, NCBs in the periphery lend more to their own banks at below market rates. To compute the cross-country transfers, we compare the resulting cross-country distribution of NCB income to a counterfactual scenario without the ECB and without non-marketable intra-Eurozone debt. We document significant and persistent transfers from the core to the periphery.

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: 65 pages
Date: 2025-09-22
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DOI: 10.20955/wp.2025.024

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