I have wasted way too much time with the Target2 debate and thought that everything as been said at least three times. However, not by everyone.
Yesterday, Aaron Tornell with UCLA and Frank Westermann (University of Osnabrück) exumed the debate with a weird post on Voxeu.org. Both academics got completely lost in the arcane details of central bank accounting and make claims that are not backed by facts. Unfortunately, this piece got a lot of publicity because FT Alphaville and Felix Salmon picked it up.
Karl Whelan debunks the arguments by Tornell and Westermann convincingly in a piece entitled “Worse than Sinn”. His conclusion is straightforward:
“this piece has even less to add (and more to subtract, if believed) to the stock of useful knowledge than Sinn’s various pieces”
There’s nothing to add to Karl’s points.
I really wounder how some academics work. If Tornell and Westermann would have bothered to take a look either a brief chapter in March edition of the Bundesbank monthly bulletin (pp 34ff) or the October edition of the ECB monthly report (pp 35ff) , they should have realised how flawed their description of the Target2 operations is.