The deposit financing gap: another Dutch disease

Abstract

In the last 2 decades, the Netherlands has experienced an increase in real-estate prices, accompanied by an increase in mortgages and a marked decline in household savings. As a consequence, banks are faced with a large retail funding gap: outstanding mortgage debt is insufficiently matched by retail deposits, whereas other funding possibilities of banks have increasingly been constrainedalso due to their large foreign exposures. Traditional macroeconomic models cannot analyse this phenomenon appropriately as they lack a proper model of the financial sector and underestimate the potential for interactions between the monetary and the real sphere. We present a stock-flow consistent approach developed by Godley and Lavoie as a valuable alternative to traditional and New Keynesian macroeconomic models, enabling us to analyse the deposit financing gap for the Netherlands.

Household debt and macroeconomic stability: An empirical stock‐flow consistent model for the Danish economy

“…The demand for loans plays a passive role and is determined by the banking sector in the model. Meijers et al (2015) include a simple housing market in their model, where demand for mortgage loans is a fixed proportion of the housing value. Burgess et al (2016) consider a housing market, where mortgage loans are determined by the loan‐to‐value ratio, whereas nominal investment in housing is determined by mortgage demand and house prices.…”

“…Furthermore, the ratio between stock of houses (K H ) to labor force (LF) in the previous period negatively affects house prices, meaning that an increase in the population (and thereby labor force) relative to the existing stock of residential units leads to a higher demand for houses, resulting in an increase in house prices. Our housing equation follows the tradition of Madsen (2012) and Meijers et al (2015). Finally, a dummy variable is introduced in 2009 to account for the structural break in house prices in 2009.…”

Crises and capital controls in small open economies: a stock–flow consistent approach

“…13 In these models, the small open economy is treated as the one influenced by global factors, but not vice versa. A few recent examples of these are Meijers et al (2015) and Byrialsen/Raza (2018).…”

Firms’ excess savings and the Dutch current-account surplus: a stock-flow consistent approach

“…We have developed an open economy stock-flow consistent model, with a separate banking sector and government, in Meijers et al (2015a) -MMS1 from hereon. In this paper we show how adding Hein's model of firm behaviour to that model enables us to explain the abovementioned phenomena observed for the Dutch situation.…”