Working Paper: NBER ID: w27627
Authors: Roberto Perotti
Abstract: Criticism of the Target system by a group of central European scholars has become a widespread argument against the policies of the European Central Bank and even the integrity of the monetary union, and even standard fare in the media and in the political debate in Germany. Most academics and practitioners that have participated in the debate have been dismissive of the German preoccupations. In this paper, I first try and clarify the many remaining misunderstandings about the workings and implications of the Target system. I propose a unified, systematic and simple approach to the study of the workings of the Target system in response to different shocks and in comparison with different alternative regimes. I then argue that the German criticism of the Target system is not so unfounded after all, and should be taken seriously, both on theoretical grounds and for its political implications.
Keywords: TARGET system; European Central Bank; Germany; monetary policy; quantitative easing
JEL Codes: E58; E63; F33
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| TARGET system (R40) | macroeconomic responses to monetary policy shocks (E39) |
| quantitative easing (QE) (C54) | TARGET claims (Y10) |
| current account shocks (F32) | balance sheets of debtor and creditor countries (F34) |
| TARGET system (R40) | risks to the German taxpayer in the event of a Eurozone breakup (F65) |