Measuring Finance for the Economy and Finance for Finance

This study analyses the composition of the yearly changes that occurred in sectorial balance sheets in 14 founder countries of the European Union from 1995 to 2015. It proposes a methodology, based on a stock-flow consistent accounting framework, to analyse how superfluous financial flows grow and how they are allocated between sectors with different functions (purchasing power creators vs. users) and between different activities (real production vs. wealth appropriation). It also examines the impact of market revaluations on sectorial balance sheets. The empirical analysis emphasises that, firstly, an increasing amount of credit creation has not contributed to the generation of real income; secondly, a prevalent and growing share of the excess finance has circulated within the domestic and foreign financial sector only; finally, financial asset revaluations, which are of the same order of magnitude as private sector transaction flows, have a high incidence on the sectorial net financial position.