Conclusions and Policy Recommendations
Target overdraft credit in principle is a useful shock absorber in the case of liquidity and confidence crises that entail the risk of fire sales and capital flight. However, as it may grow without bounds and does not have to be settled, it also enables t
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From Lehma n to
Corona
The Economics of Target Balances
Hans-Werner Sinn
The Economics of Target Balances From Lehman to Corona
Hans-Werner Sinn Department of Economics & CESifo Ludwig Maximilian University Munich, Bavaria, Germany
ISBN 978-3-030-50169-3 ISBN 978-3-030-50170-9 (eBook) https://doi.org/10.1007/978-3-030-50170-9 © The Editor(s) (if applicable) and The Author(s), under exclusive licence to Springer Nature Switzerland AG 2020 This work is subject to copyright. All rights are solely and exclusively licensed by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, expressed or implied, with respect to the material c ontained herein or for any errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations. This Palgrave Macmillan imprint is published by the registered company Springer Nature Switzerland AG. The registered company address is: Gewerbestrasse 11, 6330 Cham, Switzerland
Contents
1 Target: An Obscure Aspect of the Eurosystem 1 1.1 The Meaning of Target Balances 1 1.2 Mirroring the Eurozone Crisis 4 2 The Target Credit 9 2.1 Why Target Balances Measure Credit 9 2.2 The Decision for Public International Credit 11 3 Current Account, Capital Movements and Target Balances 17 3.1 The Basic Accounting Identity 17 3.2 Similar Balances in Other Payment Systems 21 4 The Cash Balance 25 4.1 The Measuring and Meaning of Cash Balances 25 4.2 The IMF’s Methodology 27 5 How the Target Balances Came About: The First Phase of the Crisis 29 5.1 The Phases of the Crisis 29 5.2 Opening the Sluice Gates 33 6 The Case of Greece 39 6.1 The Public Credit for Greece 39 6.2 Bailing Out Foreign Investors 42 6.3 Sudden Stop, Capital Flight and Current Account Finance 45
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Contents
7 External and Internal Money 49 7.1 Some Definitions and Identities 49 7.2 External Money Crowds Out Internal Money: The Case of Germany 51 8 The QE Program and the Target balances 53 8.1 A Liquidity Flood Named QE 53 8.2 The Great Debt Restructuring 54 8.3 The Example
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