Working Paper: NBER ID: w14663
Authors: Michael G. Palumbo; Jonathan A. Parker
Abstract: The initial implementation of the System of National Accounts (1993) for the United States by the Bureau of Economic Analysis and the Federal Reserve Board has two significant advantages for economists. First, the SNA are organized according to sectors of the economy defined by economic agents: firms, financial institutions, consumers, governments and the rest of the world. Second, the accounts integrate real and financial information, so that one can track not only production of, income from, and use of output, but also net lending, net borrowing, and net worth by sector. We exploit these two features in the SNA accounts to examine US economic history leading up to the financial crisis of 2007 and recession of 2008. First, the SNA data show recent increases in leverage in the household sector. We track the household shift to a net lending position through the capital and current accounts of the household sector and then the other SNA sectors. Second, in the financial businesses sector, the accounts largely miss the rise in exposure to the US housing market as well as the critical factors that significantly spread and amplified the housing-market related changes throughout the financial system and the real economy. Finally we present three ways in which SNA-type accounts could be improved to presage a similar future crisis.
Keywords: national accounts; financial crisis; household leverage; economic analysis
JEL Codes: E01; E21; E32; G01
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| rising household leverage (G51) | increased vulnerability of the economy to the financial crisis (F65) |
| financial sector's data failing to capture rise in exposure to housing market risks (G21) | financial crisis (G01) |
| SNA data not reflecting significant increase in leverage among financial institutions (F65) | contributed to the crisis (H12) |
| modifications to the SNA (Z13) | enhanced predictive capability for future crises (H12) |