Explosive Target Balances

Niklas Potrafke and Markus Reischmann ()

No 4297, CESifo Working Paper Series from CESifo

Abstract: Using the new unit root test by Phillips et al. (2011) we show that the Target balances of the German Bundesbank have been exploding from the beginning of 2009 to the beginning of 2013. By implementing a full-allotment policy and reducing the required minimum quality of collaterals in October 2008, the European Central Bank (ECB) refinanced credits in the GIIPS countries to a large extent. Private capital flowed out of the GIIPS countries (Greece, Italy, Ireland, Portugal and Spain), and the Target claims of the German Bundesbank increased significantly. If the Eurozone collapses, the German Bundesbank would lose its Target claims. Because the German Bundesbank would certainly request a recapitalization from the German federal government, German government debt might increase.

Keywords: Eurosystem; Target; recursive unit root test; explosiveness; hidden debt (search for similar items in EconPapers)
JEL-codes: C22 E50 E58 F32 F34 H63 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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