Bank output measurement in the euro area: A modified approach

A. Colangelo, R. Inklaar

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Abstract

Banks do not charge explicit fees for many of the services they provide, bundling the service payment with the offered interest rates. This output therefore has to be imputed using estimates of the opportunity cost of funds. We argue that rather than using the single short-term, low-risk interest rate as in current official statistics, reference rates should match the risk characteristics of loans and deposits. This would lower euro area imputed bank output by, on average, 2854 percent compared with the current methodology, implying that euro area GDP (at current prices) is overstated by 0.110.18 percent. This adjustment also leads to more plausible shares in value added of income from fixed capital in the banking industry.

Original languageEnglish
Pages (from-to)142-165
Number of pages24
JournalReview of Income and Wealth
Volume58
Issue number1
DOIs
Publication statusPublished - Mar-2012

Keywords

  • E01
  • E44
  • O47
  • bank output
  • FISIM
  • risk
  • loan interest rates
  • deposit interest rates
  • RATE PASS-THROUGH
  • TRANSMISSION
  • COMPETITION

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