Firms' excess savings and the Dutch current account surplus: a stock-flow consistent approach
Huub Meijers, Joan Muysken & Olaf Sleijpen
#2015-040
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.
JEL Classification: E44, E6, F45, G32
Key words: stock-flow consistent modelling, retained profits, current
account surplus