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

Huub Meijers, Joan Muysken and Olaf Sleijpen ()

No 2015-040, MERIT Working Papers from United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT)

Abstract: In the Netherlands firms' savings, i.e. retained profits, exceed investment at a national level. The resulting net savings are mainly held abroad. Moreover, there is a striking resemblance in the development of net savings of firms' on the one hand and the surplus on the current account on the balance of payments on the other. Both have increased to almost 10% of GDP in recent years. Next to that, the housing boom household net-savings have decreased prior to 2007 following the housing boom, accompanied by an increase in government net-savings. These trends reversed thereafter due to the bursting of the housing bubble. We present a stock-flow consistent model of the firm to explain firms' excess savings, inspired by Hein (2012), and embed that in an open economy model with a banking sector which we have developed earlier. This enables us to model the preference of firms to invest in financial assets abroad and to analyse the close link between firms' excess savings and the current account surplus. As a consequence we also explain the close link between net household savings and government budget deficit. We present simulation results to illustrate the working of our model.

Keywords: stock-flow consistent modelling; retained profits; current account surplus (search for similar items in EconPapers)
JEL-codes: E44 E60 F45 G32 (search for similar items in EconPapers)
Date: 2015
New Economics Papers: this item is included in nep-cfn and nep-mac
References: View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:unm:unumer:2015040

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