Charles, Steindel (2010): The Financial Crisis and the Measurement of Financial Sector Activity.
Download (189Kb) | Preview
The widespread expectation, forcefully posed by Reinhart and Rogoff (2009), that growth in the U.S. and the rest of the industrialized world will be subpar for a prolonged period following the financial crisis, raises issues for the measurement of the financial sector’s activity. According to the U.S. NIPA, finance and insurance accounts for roughly 8 percent of GDP, much of which consists of routine processing of transactions and maintenance of accounts. As noted in Steindel (2009), by normal growth accounting reasoning, even a marked contraction in the sector’s activity would not seem likely to be capable by itself to have a major prolonged negative impact on growth. One possible alternate way to account for the activity of the sector, building on the work of Corrado, Hulten, and Sichel (2005, 2009), is that the very high levels of employee compensation in finance partly reflect investments in market knowledge, a form of intangible capital. The increased growth in such market knowledge in the years leading up to the crisis may have helped to support growth in the economy outside of finance, while its diminution in the current environment (if not offset by increased growth of comparable knowledge elsewhere) could work to hold down growth. Altering the treatment of finance in the accounts in this fashion helps to bridge, if not fully close, the gap between the absolute size of the sector as gauged in the standard way and its generally acknowledged large and persistent effect on aggregate activity.
|Item Type:||MPRA Paper|
|Original Title:||The Financial Crisis and the Measurement of Financial Sector Activity|
|Keywords:||Financial activity; multifactor productivity; growth contribution; compensation; potential growth|
|Subjects:||O - Economic Development, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O47 - Measurement of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
E - Macroeconomics and Monetary Economics > E0 - General > E01 - Measurement and Data on National Income and Product Accounts and Wealth; Environmental Accounts
G - Financial Economics > G2 - Financial Institutions and Services > G20 - General
|Depositing User:||Charles Steindel|
|Date Deposited:||06. Dec 2010 19:47|
|Last Modified:||11. Feb 2013 19:08|
Ashcraft, Adam, and Charles Steindel (2008). “Measuring the Impact of Securitization on Imputed Bank Output.” Federal Reserve Bank of New York.
Barrera, Natalia, Marcello Estevao, and Geoffrey Keim (2009). “U.S. Potential Growth in the Aftermath of the Crisis,” in IMF Country Report No. 09/229: United States: Selected Issues, IMF Country Report No. 09/220, International Monetary Fund, July.
Basu, Susanto, Robert Inklaar, and Christina Wang (2010). “The Value of Risk: Measuring the Services of Commercial Banks.” Economic Inquiry Article first published online, (June 15).
Corrado, Carol, Charles Hulten, and Daniel Sichel (2005). “Measuring Capital and Technology: An Expanded Framework,” in C. Corrado, J. Haltiwanger, and D. Sichel (eds), Measuring Capital in the New Economy, Studies in Income and Wealth, vol. 65, Chicago (University of Chicago).
___ (2009). “Intangible Capital and U.S. Economic Growth.” The Review of Income and Wealth, series 55, no. 3, pp. 661-685 (September).
Curdia, Vasco and Michael Woodford (2010). “Conventional and Unconventional Monetary Policy.” Federal Reserve Bank of St. Louis Review, vol. 92, no. 4, pp. 229-64 (July/August).
Fixler, Dennis, Marshall Reinsdorf, and George Smith (2003). “Measuring the Services of Commercial Banks in the NIPAs: Changes in Concepts and Measures,” Survey of Current Business, vol. 83, no. 9 (September), pp. 33-45.
Furceri, Davide, and Annabelle Mourougane (2009). “The Effect of Financial Crises on Potential Output: New Empirical Evidence from OECD Countries.” OECD Economics Working Paper no. 699.
Harper, Michael J., Bhavani Khandrika, Randal Kinoshita, and Steven Rosenthal (2010). “Nonmanufacturing Industry Contributions to Multifactor Productivity, 1987-2006.” Monthly Labor Review, vol. 133, no. 6, pp. 16-30 (June).
Kohn, Donald L. (2008). “Productivity and Innovation in Financial Services.” (November 12), http://www.federalreserve.gov/newsevents/speech/kohn20081112a.htm.
Koopman, Gert Jan and Istvan P. Szekely (2009). “The Financial Crisis and Potential Growth: Policy Challenges for Europe.” ECFIN Economic Brief, Issue 3 (June), http://ec.europa.eu/economy_finance/publications/publication15519_en.pdf.
OECD (2009). “Beyond the Crisis: Medium-Term Challenges Relating to Potential Output, Unemployment, and Fiscal Positions.” OECD Economic Outlook 85, Chapter 4 (June 2009).
Oliner, Stephen D., Daniel E. Sichel, and Kevin J. Stiroh (2007). “Explaining a Productive Decade.” Brookings Papers on Economic Activity, 2007:1, pp. 81-137.
Philippon, Thomas, and Ariell Reshef (2009). “Wages and Human Capital in the U.S. Financial Industry: 1909-2006. National Bureau of Economic Research Working Paper 14644 (January).
Reinhart, Carmen M. and Vincent R. Reinhart (2010). “After the Fall,” http://www.kansascityfed.org/publicat/sympos/2010/reinhart-paper.pdf.
___ and Kenneth S. Rogoff (2009). This Time is Different: Eight Centuries of Financial Folly. Princeton and Oxford (Princeton University Press).
Schreyer, Paul (2001). “Measuring Productivity: Measurement of Aggregate and Industry Productivity Growth.” Paris (OECD, http://www.oecd.org/dataoecd/59/29/2352458.pdf).
Steindel, Charles (2009). “Implications of the Financial Crisis for Potential Growth: Past, Present, and Future.” Federal Reserve Bank of New York Staff Report no. 408 (November).
Triplett, Jack E. and Barry P. Bosworth (2004). Productivity in the U.S. Services Sector: New Sources of Economic Growth. Washington (Brookings Institution).
Wang, Christina, Susanto Basu, and John Fernald (2009). “A General-Equilibrium Asset-Pricing Approach to the Measurement of Nominal and Real Bank Output," in Price Index Concepts and Measurement, W.E. Diewert, John Greenlees, and Charles R. Hulten (eds.), NBER Studies in Income and Wealth 70, Chicago (University of Chicago).
Wolfe, Raymond M. (2010). “Research and Development in Industry: 2005, Detailed Statistical Tables.” National Science Foundation NSF 10-319 (June).