ECB policies Since the Financial Crisis: A Monetary Circuit and a Post-Keynesian Perspective.

Post-Keynesian economists have consistently argued that central banks intervene on a daily basis by injecting or removing reserves as needed to keep the benchmark interest rate on target. This has been referred to as the central bank’s ‘defensive role’. This defensive role is not visible in the daily operations of the European Central Bank. As no reflux mechanism exists, bank balances at the central bank increase or decrease with no reversions. At the same time, the reciprocal debts and credits between national central banks belonging to the Eurosystem increase without being settled TARGET (Trans-European Automated Real-time Gross settlement Express Transfer) balances. This article aims to connect the literature on monetary policy and long-term monetary operations with that on target balances. The main conclusion will be that TARGET imbalances of relevant size are expected to persist in the future quite independently of the pattern of trade flows within the eurozone. They are related to eurozone financial problems (interbank market problems, lack of sufficient integration between banking and the money market, structural differences in banking systems) rather than to balance of payments problems.