Note: This research was supported by the European Commission, Research Directorate General as part of the 7th Framework Programme, Theme 8, “Socio-Economic Sciences and Humanities” and is part of the project “Indicators for evaluating international performance in service sectors” (INDICSER). The views expressed in this paper are solely those of the authors and do not necessarily reflect the opinion of the European Central Bank. The work has benefited from useful comments and suggestions by Henning Ahnert, Giacomo Carboni, Jean-Marc Israël, Steven Keuning, Christoffer Kok Sørensen, Reimund Mink, and Christina Wang. We would also like to thank three anonymous referees for many useful comments.
BANK OUTPUT MEASUREMENT IN THE EURO AREA: A MODIFIED APPROACH
Article first published online: 4 OCT 2011
© 2011 The Authors. Review of Income and Wealth © International Association for Research in Income and Wealth 2011
Review of Income and Wealth
Volume 58, Issue 1, pages 142–165, March 2012
How to Cite
COLANGELO, A. and INKLAAR, R. (2012), BANK OUTPUT MEASUREMENT IN THE EURO AREA: A MODIFIED APPROACH. Review of Income and Wealth, 58: 142–165. doi: 10.1111/j.1475-4991.2011.00472.x
- Issue published online: 2 FEB 2012
- Article first published online: 4 OCT 2011
- bank output;
- loan interest rates;
- deposit interest rates
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, 28–54 percent compared with the current methodology, implying that euro area GDP (at current prices) is overstated by 0.11–0.18 percent. This adjustment also leads to more plausible shares in value added of income from fixed capital in the banking industry.