MONEY, CAPITAL MARKETS AND WELFARE: AN ANALYSIS OF THE EFFECTS OF TARGET2 BALANCES

As we agree with Hans-Werner Sinn and Timo Wollmershäuser (2011a) on their basic thesis, which says that the mechanism of Target2 balances opens a new and very real channel for additional credit to the GIPS countries (Greece, Ireland, Portugal, Spain), and that it triggers involuntary capital export...

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Bibliographic Details
Published in:CESifo forum 2012-01, Vol.13, p.55
Main Authors: Sell, Friedrich L, Sauer, Beate
Format: Article
Language:English
Subjects:
Balance of payments
Capital markets
Central banks
Commercial banks
Consumer goods
Demand curves
Economic models
Eurozone
Fixed rates
Interest rates
Monetary policy
Money markets
Supply & demand
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Summary:As we agree with Hans-Werner Sinn and Timo Wollmershäuser (2011a) on their basic thesis, which says that the mechanism of Target2 balances opens a new and very real channel for additional credit to the GIPS countries (Greece, Ireland, Portugal, Spain), and that it triggers involuntary capital exports of the GLNF countries (Germany, Luxembourg, Netherlands, Finland) without changing the monetary base of the eurozone, we need not engage here in the often heated debate within the scientific community. In this paper we limit ourselves to three questions: firstly, we intend to supplement the past analysis of demand and supply of the monetary base in the GLNF countries with the corresponding one in the GIPS countries. In this we slightly amend the proposed model of Sinn and Wollmershäuser (2011a). Secondly, we discuss the effects of Target2 balances on the capital markets of the concerned countries in the framework of the New Austrian School of Economics. This model framework stands in the tradition of Friedrich A. v. Hayek's (1929 and 1931) capital theory and was developed principally by Roger M. Garrison (2002). Thirdly and finally we conduct a static welfare analysis of Target2 balances according to Brakman et al. (2006). [PUB ABSTRACT]
ISSN:1615-245X
2190-717X