Year: 2019
Type: article
Abstract: During the Great Financial Crisis several euro area Member States with current account deficits were subject to sharp reversals of private capital flows. We examine how the specific policy rules of the euro area's payments system TARGET2 affects the macroeconomic adjustments to sudden stops. We find that – in the short run – public capital flows in form of TARGET2 help euro area‐deficit countries to stabilize output, consumption, and investment after a sudden stop of private capital inflows. In the long run, however, euro area countries suffer under a prolonged economic recovery and accumulated large public debt as well as higher welfare losses relative to euro peggers.
DOI: 10.1111/sjpe.12194
Authors: Lena Kraus, Jürgen Beier, Bernhard Herz
Institution: University of Bayreuth
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: bronze
OpenAlex ID: W2907293763