Exit strategies,capital flight and speculative attacks: Europe's version of the trilemma |
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| Institution: | 1. University of Groningen, Faculty of Economics and Business, Department of Global Economics and Management, Nettelbosje 2, 9747 AE Groningen, the Netherlands;2. CESifo, Germany;3. Osnabrueck University, Institute of Empirical Economic Research, Rolandstr. 8, 49069 Osnabrueck, Germany;1. Baugh Center for Entrepreneurship & Free Enterprise, Baylor University, USA;2. Department of Economics, Clemson University, USA;1. Louisiana State University and NBER, USA;2. Hasselt University, Belgium;1. Department of Economics, Appalachian State University, Boone, NC 28608, USA;2. Department of Economics, West Virginia University, Morgantown, WV 26501, USA;1. Università di Salerno, CSEF, Italy;2. Università degli Studi di Milano, Italy;3. GLO, Essen, Germany |
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| Abstract: | In the winter 2011/12, a wave of internal capital flight prompted the ECB to abandon its exit strategy and announce an unprecedented monetary expansion. We analyze this episode in several dimensions: (i) we provide an event-study analysis, covering key variables from national central banks' balance sheets, (ii) we rationalize the empirical patterns in a formal discussion of the constraints in a monetary union and (iii) we analyze different indicators of redenomination risk in the euro area. Finally, we argue that the euro area entails an inherent policy trilemma that makes it prone to speculative attacks. |
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| Keywords: | Currency union Policy trilemma Redenomination risk Speculative attack TARGET2 E42 F36 F41 F45 |
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