Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/278225 
Year of Publication: 
2022
Series/Report no.: 
ECB Working Paper No. 2750
Publisher: 
European Central Bank (ECB), Frankfurt a. M.
Abstract: 
The growth in TARGET balances after 2009 has given rise to intense academic and public debate. Our paper offers a systematic exposition of the necessary conditions for TARGET balances to emerge and provides a clear link to monetary policy. We show that large TARGET balances can only arise with excess liquidity. The interpretation of TARGET balances therefore depends on the monetary policy context in which excess liquidity is created. We distinguish three phases of TARGET balances growth and propose some easy-to-derive metrics for policy makers and academics to assess developments in TARGET balances. We develop a comprehensive econometric framework to account for relevant factors driving TARGET balances in the different phases. We find that while financial market stress and economic imbalances were the drivers of TARGET balances during the great financial and sovereign debt crises, the implementation of Eurosystem asset purchases was the driving force since March 2015. As excess liquidity is likely to persist on account of higher demand for central bank reserves compared to the pre-crisis period, TARGET balances have the potential to remain sizeable in the future.
Subjects: 
TARGET2
asset purchase programme
excess liquidity
balance of payments
JEL: 
E42
E58
F32
Persistent Identifier of the first edition: 
ISBN: 
978-92-899-5398-6
Document Type: 
Working Paper

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.