UNU-MERIT Working Papers Series

The deposit financing gap: Another Dutch disease

Huub Meijers, Joan Muysken & Olaf Sleijpen #2014-071

In the last two decades the Netherlands have 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 constrained - also due to their large foreign exposures.

In this paper we argue that traditional macroeconomic models cannot analyse this phenomenon appropriately since 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 and we use this approach to analyse the deposit financing gap for the Netherlands.

JEL Classification: E44, B5, E6, G21

Keywords: stock-flow consistent modelling, retail funding gap, mortgage financing

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