The macroeconomic implications of financialisation on the wealth distribution: A stock-flow consistent approach

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.