The Financial Crisis and the Measurement of Financial Sector Activity
AbstractThe widespread expectation, forcefully posed by Reinhart and Rogoff (2009), that growth in the U.S. and the rest of the industrialized world will be subpar for a prolonged period following the financial crisis, raises issues for the measurement of the financial sector’s activity. According to the U.S. NIPA, finance and insurance accounts for roughly 8 percent of GDP, much of which consists of routine processing of transactions and maintenance of accounts. As noted in Steindel (2009), by normal growth accounting reasoning, even a marked contraction in the sector’s activity would not seem likely to be capable by itself to have a major prolonged negative impact on growth. One possible alternate way to account for the activity of the sector, building on the work of Corrado, Hulten, and Sichel (2005, 2009), is that the very high levels of employee compensation in finance partly reflect investments in market knowledge, a form of intangible capital. The increased growth in such market knowledge in the years leading up to the crisis may have helped to support growth in the economy outside of finance, while its diminution in the current environment (if not offset by increased growth of comparable knowledge elsewhere) could work to hold down growth. Altering the treatment of finance in the accounts in this fashion helps to bridge, if not fully close, the gap between the absolute size of the sector as gauged in the standard way and its generally acknowledged large and persistent effect on aggregate activity.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 27240.
Date of creation: 13 Nov 2010
Date of revision:
Financial activity; multifactor productivity; growth contribution; compensation; potential growth;
Find related papers by JEL classification:
- O47 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Measurement of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
- E01 - Macroeconomics and Monetary Economics - - General - - - Measurement and Data on National Income and Product Accounts and Wealth; Environmental Accounts
- G20 - Financial Economics - - Financial Institutions and Services - - - General
This paper has been announced in the following NEP Reports:
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Basu, Susanto & Inklaar, Robert & Wang, J. Christina, 2008.
"The Value of Risk: Measuring the Service Output of U.S. Commercial Banks,"
GGDC Research Memorandum, Groningen Growth and Development Centre, University of Groningen
GD-102, Groningen Growth and Development Centre, University of Groningen.
- Susanto Basu & Robert Inklaar & J. Christina Wang, 2011. "The Value Of Risk: Measuring The Service Output Of U.S. Commercial Banks," Economic Inquiry, Western Economic Association International, vol. 49(1), pages 226-245, 01.
- Susanto Basu & Robert Inklaar & J. Christina Wang, 2008. "The Value of Risk: Measuring the Service Output of U.S. Commercial Banks," NBER Working Papers 14615, National Bureau of Economic Research, Inc.
- Susanto Basu & Robert Inklaar & J. Christina Wang, 2008. "The value of risk: measuring the service output of U. S. commercial banks," Working Papers, Federal Reserve Bank of Boston 08-4, Federal Reserve Bank of Boston.
- Charles Steindel, 2009. "Implications of the financial crisis for potential growth: past, present, and future," Staff Reports, Federal Reserve Bank of New York 408, Federal Reserve Bank of New York.
- Carmen M. Reinhart & Vincent R. Reinhart, 2010.
"After the Fall,"
NBER Working Papers
16334, National Bureau of Economic Research, Inc.
- Carmen M. Reinhart & Vincent R. Reinhart, 2010. "After the fall," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, Federal Reserve Bank of Kansas City, pages 17-60.
- W. Erwin Diewert & John S. Greenlees & Charles R. Hulten, 2009. "Price Index Concepts and Measurement," NBER Books, National Bureau of Economic Research, Inc, number diew08-1.
- Christina Wang & Susanto Basu & John G. Fernald, 2004.
"A general-equilibrium asset-pricing approach to the measurement of nominal and real bank output,"
Working Papers, Federal Reserve Bank of Boston
04-7, Federal Reserve Bank of Boston.
- J. Christina Wang & Susanto Basu & John G. Fernald, 2009. "A General-Equilibrium Asset-Pricing Approach to the Measurement of Nominal and Real Bank Output," NBER Chapters, in: Price Index Concepts and Measurement, pages 273-320 National Bureau of Economic Research, Inc.
- J. Christina Wang & Susanto Basu & John G. Fernald, 2008. "A General-Equilibrium Asset-Pricing Approach to the Measurement of Nominal and Real Bank Output," NBER Working Papers 14616, National Bureau of Economic Research, Inc.
- Carol Corrado & Charles Hulten & Daniel Sichel, 2004.
"Measuring capital and technology: an expanded framework,"
Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.)
2004-65, Board of Governors of the Federal Reserve System (U.S.).
- Carol Corrado & Charles Hulten & Daniel Sichel, 2005. "Measuring Capital and Technology: An Expanded Framework," NBER Chapters, in: Measuring Capital in the New Economy, pages 11-46 National Bureau of Economic Research, Inc.
- Dennis J Fixler & Marshall B Reinsdorf & Shaunda Villones, 2010. "Measuring the services of commercial banks in the NIPA," IFC Bulletins chapters, Bank for International Settlements, in: Bank for International Settlements (ed.), The IFC's contribution to the 57th ISI Session, Durban, August 2009, volume 33, pages 346-349 Bank for International Settlements.
- Davide Furceri & Annabelle Mourougane, 2009.
"The Effect of Financial Crises on Potential Output: New Empirical Evidence from OECD Countries,"
OECD Economics Department Working Papers
699, OECD Publishing.
- Furceri, Davide & Mourougane, Annabelle, 2012. "The effect of financial crises on potential output: New empirical evidence from OECD countries," Journal of Macroeconomics, Elsevier, Elsevier, vol. 34(3), pages 822-832.
- Cúrdia, Vasco & Woodford, Michael, 2009.
"Conventional and Unconventional Monetary Policy,"
CEPR Discussion Papers, C.E.P.R. Discussion Papers
7514, C.E.P.R. Discussion Papers.
- Vasco Curdia & Michael Woodford, 2010. "Conventional and Unconventional Monetary Policy," Discussion Papers, Columbia University, Department of Economics 0910-17, Columbia University, Department of Economics.
- Vasco Cúrdia & Michael Woodford, 2009. "Conventional and unconventional monetary policy," Staff Reports, Federal Reserve Bank of New York 404, Federal Reserve Bank of New York.
- Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "This Time Is Different: Eight Centuries of Financial Folly," Economics Books, Princeton University Press, Princeton University Press, edition 1, volume 1, number 8973.
- repec:fip:fedgsq:y:2008:x:80 is not listed on IDEAS
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht).
If references are entirely missing, you can add them using this form.