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Exit strategies, capital flight and speculative attacks: Europe's version of the trilemma

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  • Steiner, Andreas
  • Steinkamp, Sven
  • Westermann, Frank
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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  • Steiner, Andreas & Steinkamp, Sven & Westermann, Frank, 2019. "Exit strategies, capital flight and speculative attacks: Europe's version of the trilemma," European Journal of Political Economy, Elsevier, vol. 59(C), pages 83-96.
    • Handle: RePEc:eee:poleco:v:59:y:2019:i:c:p:83-96
    DOI: 10.1016/j.ejpoleco.2019.02.003
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    7. Cheung, Yin-Wong & Steinkamp, Sven & Westermann, Frank, 2020. "Capital flight to Germany: Two alternative measures," Journal of International Money and Finance, Elsevier, vol. 102(C).
    8. Stefan Homburg, 2018. "Speculative Eurozone Attacks and Departure Strategies," CESifo Working Paper Series 7343, CESifo.
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    More about this item

    Keywords

    Currency union; Policy trilemma; Redenomination risk; Speculative attack; TARGET2;
    All these keywords.

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F45 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Macroeconomic Issues of Monetary Unions

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