The deposit financing gap: Another Dutch disease

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