Theory and measurement in SFC models: the role of the financial sector

The overarching main purpose of this paper is to detail all data collection and data manipulation and choices to be made to come to a consistent dataset to estimate and calibrate an SFC model, for which we use the model as specified in Meijers and Muysken (2022) as reference. This also enables us to show more in general how data collection from national accounts in a stock-flow consistent way influences the modelling of an economy. We give examples for the composition of the wealth of households by including non-traded assets, the composition of the wealth of firms by identifying direct investments – both outwards and inward, and the composition of the wealth of government by pointing out the substantial amount of assets owned by the government, which we ignore. Next, we identify the impact of pension funds on both decisions made by households, including forced savings, and on the entire financial sector. We show how the net foreign debt accumulates through a persistent trade balance surplus and is financed to a large extent by pension funds. Finally, we show that corrections in income and savings are required to retain the consistency of the model while staying close to the national accounts. All these observations have important consequences for modelling the savings and investment behaviour of the various sectors.