The macroeconomic implications of financialisation on the wealth distribution - a stock-flow consistent approach
Huub Meijers & Joan Muysken
#2022-035
Deregulation and globalization since the early 1990s caused a boom in
the current global financial cycle, which cumulated in the financial
crisis in 2007. Austerity fiscal policies after the financial crisis
induced Central Banks all over the world to intervene by stimulating
‘unconventional’ monetary policies. In earlier papers, we developed
several stock flow consistent models for an open Euro Area economy to
investigate various aspects of the impact of these developments, with
special attention to the role of the Central Bank with low interest
policy and quantitative easing. We analysed the influence on mortgage
growth and house prices, the growing amount of funded pension savings
held abroad and the destabilising impact of low interest rates on
pension claims, and the phenomenon that firms more and more use their
savings for share buy-backs and (speculative) investments abroad – see
Muysken and Meijers (2022) for an overview. However, we did not pay
explicit attention to the distributional consequences these developments
might have.
The social and economic impact of the COVID crisis since early 2020
stimulated the awareness in the literature and the policy debate that
the increase in house prices and asset prices invigorated wealth
inequality. These developments create social tensions and therefore can
have severe economic consequences.
In the present paper, we bring all our earlier models together in one
stock-flow consistent model, which we estimate and simulate for the
Netherlands. The model is based on a stock-flow consistent set of
macroeconomic data, which we collected for the Netherlands. In line with
our previous research we argue that these phenomena can be captured very
well by a stock flow consistent model in the tradition of Godley and
Lavoie, which we estimate and simulate for the Netherlands. From
simulations with our model we show that both housing price bubbles and
asset price bubbles occur due to low interest rates and riskier bank
behaviour, induced by a central bank policy of Quantitative Easing. The
intended aim of this central bank policy – enhancing economic growth –
is not reached, because the monetary stimulus is absorbed by the
financial sector. Moreover, a presumably unintended consequence of
Quantitative Easing in the Netherlands is an increase in wealth
inequality.
JEL Classification: E44, B5, E6, F45, G21, G32
Keywords: financialisation, wealth distribution, inequality, stock-flow consistent modelling