EconPapers    
Economics at your fingertips  
 

Risk Bearing, Implicit Financial Services and Specialization in the Financial Industry

J. Christina Wang and Susanto Basu ()

No 14614, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper makes three points regarding the proper measurement of the output of financial intermediaries. Two of them concern the measurement of nominal financial output, especially banking output. First, we show that, to impute the nominal value of implicitly priced financial output, it is necessary to adjust each reference rate of interest (also called "the user cost of funds") for the risk inherent in that corresponding financial transaction. Otherwise, nominal financial output will be overstated, and the bias can be large (about 25 percent). Second, we argue that, according to finance theory, the required risk correction can be implemented practically at the level of industries (e.g., the banking sector as a whole). The third point concerns the construction of a financial services price index, and thus applies to the measurement of real output. We argue that the reference rates or the related rate spreads, which are used to impute the nominal output of financial institutions, are not the right implicit price deflators for deriving the real output of financial institutions

JEL-codes: E01 E44 G21 G32 (search for similar items in EconPapers)
Date: 2008-12
New Economics Papers: this item is included in nep-cba and nep-mac
Note: PR
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
http://www.nber.org/papers/w14614.pdf (application/pdf)

Related works:
Working Paper: Risk bearing, implicit financial services, and specialization in the financial industry (2005) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:14614

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w14614

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().

 
Page updated 2021-06-18
Handle: RePEc:nbr:nberwo:14614