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Discussion Paper Details

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Title: Understanding the German criticism of the Target system and the role of central bank capital

Author(s): Roberto Perotti

Publication Date: July 2020

Keyword(s): Central bank capital, European Monetary Union and Target2 system

Programme Area(s): International Macroeconomics and Finance

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.

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Bibliographic Reference

Perotti, R. 2020. 'Understanding the German criticism of the Target system and the role of central bank capital'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=15067