Working Paper: NBER ID: w14615
Authors: Susanto Basu; Robert Inklaar; J. Christina Wang
Abstract: Rather than charging direct fees, banks often charge implicitly for their services via interest spreads. As a result, much of bank output has to be estimated indirectly. In contrast to current statistical practice, dynamic optimizing models of banks argue that compensation for bearing systematic risk is not part of bank output. We apply these models and find that between 1997 and 2007, in the U.S. National Accounts, on average, bank output is overestimated by 21 percent and GDP is overestimated by 0.3 percent. Moreover, compared with current methods, our new estimates imply more plausible estimates of the share of capital in income and the return on fixed capital.
Keywords: Banking; Service Output; Risk Measurement
JEL Codes: E01; E44; G21; G32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| risk-adjusted reference rates (E43) | measured bank output (E23) |
| risk-free rates (E43) | inflated output estimates (P24) |
| risk premium (G19) | measurement of bank output (G21) |
| estimated capital share in income (D33) | impacted by adjustments (F32) |
| internal rate of return on fixed capital (G31) | impacted by adjustments (F32) |
| current national accounts methods (E01) | overstate bank output (E51) |
| current national accounts methods (E01) | overstate GDP (P24) |