출처: Francois Lequiller and Derek Blades, Understanding National Accounts (Paris: Organization for Economic Cooperation and Development, 2006).
자료: 구글도서
OF WHICH
※ 발췌 (excerpt): pp. 103~115
Production is what leads to “output” (as it is termed in the national accounts), creating jobs, generating income for workers and owners of capital, and resulting in the goods and services found in our stores. Output is a central concept in economics. It is essentially used by economists in ^volume^ terms (i.e., not at current prices).
Output results from the three ^factors of production^: labour, capital and intermediate consumption (inputs). Standard macroeconomic presentations often uses a measure based on value added (rather than output) making it possible dispense with intermediate consumption and hence show only labour and capital as the factors of production. When modelling the growth of output in volume (or, rather the growth of value added when intermediate consumption has been deducted from both sides of the equation), OECD economists use the following formula:
Y' ＝ [f(L, K) × MFP]'
Y' is the growth rate of value added; L stands for labour, and K for capital; f is the production function; and the sign ' means the derivative. The term "MFP" stands for "multifactor productivity", which is that part of the change in value added that cannot be attributed to changes in the volume of labour or to capital inputs in production. Its rate of change represents the contribution to value added growth of a more productive combination of labour and capital (for example, improved organisation of work or new techniques). MFP is sometimes called "disembodied technological progress", since it is the result of technical progress that is not reflected in the measurement of capital and labour. MFP is not directly measurable and can only be obtained as a residual from the above formula. Despite its elusive nature, MFP provides the main driving force behind long-term increases in the standard of living. In recent years, numerous studies have shown that MFP has been growing faster in the U.S., Canada, Australia and Nordic European countries compared with France, Germany and Italy. Within continental Europe, this has triggered an awareness of the need to invest in new technologies and R&D and to carry out structural reforms.
OECD economists also use output (value added) statistics, again in volume terms, to estimate the "output gap". They do so as part of the regular monitoring of the economic situation in member countries. The basic idea is simple. Given the quantity of labour and capital available at a given moment, what is the maximum growth rate of GDP in volume that can be obtained without fuelling inflation? The corresponding level is known as "potential GDP". Potential GDP is compared with observed GDP. ( ... ... )
( ... ... )
1. The production frontier
As it may have become clear from the above, ^output^ is a central concept for national accountants aiming to compile useful data.
But it remains to be seen precisely what output covers. To do that, we need to trace the “production frontier”, deciding what to ^include^ in GDP and what to ^exclude^. Most of what to include in GDP is non-controversial. For a start, output as measured in the national accounts includes what creates the goods and services that households buy for their everyday needs, and that firms to buy to be able to produce these goods and services. The important word in this last sentence is "buy", implying that all transactions that are "monetised" are included in GDP. But what about the activity of civil servants and members of the armed forces? Nobody buys the output of ministries or of the army. Another grey area is that household services rendered free of charge. If one person pays another to clean his windows, this is output, since a service has been sold. But what if people clean their own windows? Does this lie within the production frontier?
As we shall see later, there is general consensus favourng the inclusion in GDP of the services provided by general government. Although these services are not sold, they are included as output (value added) in the national accounts and are called non-market services produced by general government. This value added is very substantial, since it represents roughly 15% to 20% of GDP, depending on the OECD country concerned. By contrast, the "non-traded output" of households─cooking, cleaning, child care, etc.─is, with one exception, not included in the national accounts. The exception consists of the housing that homeowners implicitly provide for themselves. The national accounts act ^as if^ the owner-occupiers provided housing services (a dwelling to live in) to themselves. These notional, or in national accounts jargon "imputed" transactions, are estimated to be equal to the rents that homeowners would have paid to live in dwellings of the same type, in the same district and the the same service facilities. These imputed rents are added to actual rents to calculate the total output of "housing services".
Imputations are carried out only when they are absolutely necessary for the analysis of changes over time in macroeconomic aggregates or for comparisons between several countries. This is the case for these imputed rents of owner-occupiers. If this output were not included by imputation, the result would be a structural decline over time in GDP, because the long-term upwards trends in home ownership would automatically produce a downward trend in the total value of actual rents (and thus in GDP, all things being equal). It would also make it difficult to compare the GDPs of different countries because the rate of home ownership varies markedly among countries.
Another example of imputation in national accounts is that of goods (mainly food) that some households produce for their own consumption. This represents only a very small part of output in OECD countries, but it developing countries, where farmers consume much of their own production, the proportion of this production for own consumption is much higher. In some countries, farmers and other households even produce their tools, houses, outbuildings or their own clothes. As a result, the convention adopted in national accounts has been to impute in the calculation of GDP the output of all ^goods^ going into households' own consumption, attributing to them the market price of an identical good. On the other hand, as we saw earlier, the ^services^ household produce for themselves are not imputed in the national accounts, with the notable exception of housing services in the case of owner-occupiers. Nor is any account taken of the services some household provide to others free of charge (repairing a neighbour's dripping tap for nothing).
2. The illegal economy and the underground economy (p. 109): ... ... ...
3. Measurement of output and of value added: The general case (pp. 110 ~ )
As we saw earlier, output in the national accounts mainly consists of the value of goods and services produced in order to be sold to other agents (output not intended for sale is not recorded, with certain exceptions). As pointed out in Chapter 1, this poses a problem of aggregation, in that the sum of output measured in this way can change over time, not because more goods and services are produced but because firms are able to outsource certain activities previously carried out in-house (see Box 4.2: "the trap of internalisation and externalisation:). National accountants have therefore created the concept of value added. We shall be returning to this later.
However, even if value added is preferred to output, the concept of output is widely used in national accounts. How is it measured? Output at current prices is generally measured by sales. But an adjustment is necessary. In the case of goods, at least part of the output produced in the designated period may not be sold, and so it is stocked as inventory. Similarly, some of the goods sold in the current period may have come out of inventory (and not produced during the period). Finally, part of the output during the period may not have been completely finished and is stocked as "work in progress". In the end, output at current prices is measured as: sales plus change (positive or negative) in inventories of finished products or work in progress. This formula is regularly used to calculate output, since the data required exist in company accounts, albeit not always in easily usable form (see Box. 4.3).
As for the prices at which output is measured, these are the "basic price" corresponding to the revenue per unit of products sold that remain in the hands of the producer.
Basic prices therefore does not include taxes on products (for example, value-added taxes or special taxes on petroleum products or alcoholic beverages), because these amounts do not remain with the producer but are forward to the tax authorities. On the other hand, the basic price includes the subsidies received on products. Therefore, in the national accounts, the prices for exported agricultural products are not the low prices made possible by the export subsidies granted to farmers of OECD countries but the actual sales prices plus the subsidies, thus a price that is closer to the real costs of production. Finally, output in volume is compiled as output at current prices deflated by the appropriate price index.
^Intermediate consumption^ represents the value of the basic materials, components and semi-manufactured goods going into the product, as well as the value of the electricity, the cost of rents, IT services, insurance, legal and accounting services, etc., used in the production of a good or a service. In short, intermediate consumption consists of everything needed to produce other goods and services intended for sale, other than the labour of the internal workforce and the services provided by plant and machinery, offices and factory buildings.
Just as output is not equal to sales, intermediate consumption is not equal to the purchases of goods and services intended to be intermediately consumed. This is because certain intermediate goods used in the production during the period many have been bought and stocked in a previous period. Similarly, some purchases during the period may be consumed after it has ended, having been stocked in the meantime. In the end, intermediate consumption is equal to the purchases during the period ^minus^ the change (positive or negative) in the value of the inventories of goods and services for intermediate consumption. Firms often refer to these inventories as "materials inventories". Like output, intermediate consumption is a flow, corresponding to what has been consumed during a period (a year or a quarter). This leads to the exclusion from the definition of intermediate consumption of the goods used for production but not entirely consumed during the period, such as machinery or software. These capital goods are classified as "gross fixed capital formation" or GFCF.
^Value added^, as its name implies, measure the value the firm adds to the products used to manufacture the output and is equal to: output minus intermediate consumption. It can be deduced, using the definitions given earlier for the measurement of output and intermediate consumption, that value added at current prices is equal to: sales minus purchases plus total inventory changes (finished products, work in progress and materials). Value added is a central concept in national accounts. However, because it is defined as a difference between two monetary values (output minus intermediate consumption), it is not clear at first sight exactly what it represents. A useful way of defining value added at current prices is to consider it as the amount of money generated by production that remains available to pay:
It is sometimes this approach that is used in practice to measure firms' value added at current prices in the national accounts (see box "The data sources for the value added of non-financial enterprises in France" at the end of chapter). Value added in volume is the difference between output in volume and intermediate consumption in volume.
4. The measurement of output and of value-added: Special cases
The definition of output at current prices are equal to sales plus changes in inventories of finished products and work in progress is applicable to virtually the totality of the business sector in the national accounts. This sector is also known as the ^market sector^, for which there exists a market with recorded sales, transactions and prices that permit the direct measurement of output. Note however that, even in the market sector, there are activities whose output is difficult to measure or even identify such as banks, insurance companies and retail distributors for which the definition of output based on sales does not work very well. They are all market activities, but their output is mainly purchased indirectly. Therefore an alternative measure of output is needed. Furthermore, there are large activities for which the notion of sales is non-existent, and these constitute the ^non-market sector^, covering mainly services provided by general government. The organization concerned do not sell their services, and it is therefore necessary to find a different measure of their output.
^Non-market producers^ are those that provide services, and in some cases goods, either free of charge or at prices that are not economically significant, meaning in practice prices that cover less than half the cost of production. General government bodies constitute the bulk of the non-market producers, but there are others, like the non-profit institutions (see Chapter 5). Most of the services provided by general government─defence, economic policy, foreign policy, public education and public health care─are provided to the general public without charge. These service are obviously financed through taxation and social contributions, but there is no direct link between the payment of the taxes and the level of services received. Citizens or firms are not entitled, for example, to vary their taxes based on the amount of defence or policing they want to consume. A tax is a compulsory transfer to general government and is not the price of a public service.
( ... ... )
Whether individual or collective, as there are practically no sales, non-market output at current prices is conventionally measured as equal to the sum of its production costs, including (a) the intermediate consumption; (b) the compensation of employees; (c) the consumption of fixed capital, which is the utilisation cost of equipment used by non-market producers (see following Box 4.4); and, in rare cases (d) the other taxes paid on production. Exercise 4, at the end of this chapter, shows that measurement of non-market output in the national accounts basically assumes that these are non-profit activities, a very reasonable assumption.
The general formula for measuring output from sales cannot be used to measure the ^output of banks^, because banks invoice directly only a very limited portion of their services (for example, foreign exchange commissions, cheque-handling fees, stock-market transaction fees, separately-charged financial advice), but not the bulk of their services, which is making loans. Measurement using the general formula would result in their value added being very small, if not negative; in other words, their intermediate consumption would be greater than their sales! Because banks are obviously profit-making enterprises, there is something wrong here. The fact is that bank make the bulk of their profit by borrowing at low interest rates from depositors and then lending the proceeds to other borrowers at a higher interest rate. The difference between these two interest rates, which provides the essential part of banks' remuneration, is interpreted in national accounts as their ^financial intermediation^ service. The banks are in fact intermediaries between those who want to save─mainly households─and those who want to borrow─mainly firms. Without the banks, these agents would have greater difficulty in coming together. The national accounts therefore measure the output at current prices of banks as the sum of their sales plus, approximately, the difference between the interest received from borrowers and the interest paid to lenders. This difference, which forms the bulk of the total, is known as ^financial intermediation services indirectly measured^ or FISIM (see Going Further).
Box 4.4. Is the output of general government understated? (p. 115): ... ... ...
Measuring the output of ^insurance companies^ is even more problematic than in the case of banks. ( ... ... )
When measuring output for the national accounts, ^distribution^ (both wholesale and retail) also contributes a special category. ( ... ... )
5. Nomenclatures and classifications (p. 117): ... ... ...
( ... ... )
OF WHICH:
FISIM
FISIM (financial intermediation services indirectly measured) is the term used to describe the services that banks provide to their customers but which are not invoiced.
FISIM at current prices is calculated using the following (simplified) formula:
In the formula above,
The logic of national accounts requires that if FISIM is counted in the measurement of output it must also be recorded as consumption on the part of those using these services.
Chapter 4
Production: What it includes and excludes
Production is what leads to “output” (as it is termed in the national accounts), creating jobs, generating income for workers and owners of capital, and resulting in the goods and services found in our stores. Output is a central concept in economics. It is essentially used by economists in ^volume^ terms (i.e., not at current prices).
Output results from the three ^factors of production^: labour, capital and intermediate consumption (inputs). Standard macroeconomic presentations often uses a measure based on value added (rather than output) making it possible dispense with intermediate consumption and hence show only labour and capital as the factors of production. When modelling the growth of output in volume (or, rather the growth of value added when intermediate consumption has been deducted from both sides of the equation), OECD economists use the following formula:
Y' ＝ [f(L, K) × MFP]'
Y' is the growth rate of value added; L stands for labour, and K for capital; f is the production function; and the sign ' means the derivative. The term "MFP" stands for "multifactor productivity", which is that part of the change in value added that cannot be attributed to changes in the volume of labour or to capital inputs in production. Its rate of change represents the contribution to value added growth of a more productive combination of labour and capital (for example, improved organisation of work or new techniques). MFP is sometimes called "disembodied technological progress", since it is the result of technical progress that is not reflected in the measurement of capital and labour. MFP is not directly measurable and can only be obtained as a residual from the above formula. Despite its elusive nature, MFP provides the main driving force behind long-term increases in the standard of living. In recent years, numerous studies have shown that MFP has been growing faster in the U.S., Canada, Australia and Nordic European countries compared with France, Germany and Italy. Within continental Europe, this has triggered an awareness of the need to invest in new technologies and R&D and to carry out structural reforms.
OECD economists also use output (value added) statistics, again in volume terms, to estimate the "output gap". They do so as part of the regular monitoring of the economic situation in member countries. The basic idea is simple. Given the quantity of labour and capital available at a given moment, what is the maximum growth rate of GDP in volume that can be obtained without fuelling inflation? The corresponding level is known as "potential GDP". Potential GDP is compared with observed GDP. ( ... ... )
( ... ... )
1. The production frontier
As it may have become clear from the above, ^output^ is a central concept for national accountants aiming to compile useful data.
※ But the concept of "output" is foreign to business accounting,
which focuses exclusively on "sales".
But it remains to be seen precisely what output covers. To do that, we need to trace the “production frontier”, deciding what to ^include^ in GDP and what to ^exclude^. Most of what to include in GDP is non-controversial. For a start, output as measured in the national accounts includes what creates the goods and services that households buy for their everyday needs, and that firms to buy to be able to produce these goods and services. The important word in this last sentence is "buy", implying that all transactions that are "monetised" are included in GDP. But what about the activity of civil servants and members of the armed forces? Nobody buys the output of ministries or of the army. Another grey area is that household services rendered free of charge. If one person pays another to clean his windows, this is output, since a service has been sold. But what if people clean their own windows? Does this lie within the production frontier?
As we shall see later, there is general consensus favourng the inclusion in GDP of the services provided by general government. Although these services are not sold, they are included as output (value added) in the national accounts and are called non-market services produced by general government. This value added is very substantial, since it represents roughly 15% to 20% of GDP, depending on the OECD country concerned. By contrast, the "non-traded output" of households─cooking, cleaning, child care, etc.─is, with one exception, not included in the national accounts. The exception consists of the housing that homeowners implicitly provide for themselves. The national accounts act ^as if^ the owner-occupiers provided housing services (a dwelling to live in) to themselves. These notional, or in national accounts jargon "imputed" transactions, are estimated to be equal to the rents that homeowners would have paid to live in dwellings of the same type, in the same district and the the same service facilities. These imputed rents are added to actual rents to calculate the total output of "housing services".
Imputations are carried out only when they are absolutely necessary for the analysis of changes over time in macroeconomic aggregates or for comparisons between several countries. This is the case for these imputed rents of owner-occupiers. If this output were not included by imputation, the result would be a structural decline over time in GDP, because the long-term upwards trends in home ownership would automatically produce a downward trend in the total value of actual rents (and thus in GDP, all things being equal). It would also make it difficult to compare the GDPs of different countries because the rate of home ownership varies markedly among countries.
Another example of imputation in national accounts is that of goods (mainly food) that some households produce for their own consumption. This represents only a very small part of output in OECD countries, but it developing countries, where farmers consume much of their own production, the proportion of this production for own consumption is much higher. In some countries, farmers and other households even produce their tools, houses, outbuildings or their own clothes. As a result, the convention adopted in national accounts has been to impute in the calculation of GDP the output of all ^goods^ going into households' own consumption, attributing to them the market price of an identical good. On the other hand, as we saw earlier, the ^services^ household produce for themselves are not imputed in the national accounts, with the notable exception of housing services in the case of owner-occupiers. Nor is any account taken of the services some household provide to others free of charge (repairing a neighbour's dripping tap for nothing).
Such exclusions may seem arbitrary, but they are at least have the merits of avoiding having to make too many imputations, some of them extremely hazardous (see box "Household services" at the end of this chapter.
In conclusion, national accounts define output as the result of the utilisation of one, or more, of the three factors of production: labour, capital and intermediate consumption (material inputs). This necessary condition leads to a very broad definition of output. However, this is later narrowed down by the imposition of other criteria, as the following "decision tree" shows (start reading the diagram from the top left-hand corner). The most important arrow in the diagram, which one could regard as the heart of national accounts, is in the top right-hand corner. It indicates that output consists essentially of the value of goods and services produced by certain economic agents for ^sale^ to other economic agents (monetary exchange, or in exceptional cases, barter). In the economies of the OECD countries, this constitutes the bulk of output. However, one must not overlook the non-market services produced by general government and the imputed housing services enjoyed by owner-occupiers.
2. The illegal economy and the underground economy (p. 109): ... ... ...
3. Measurement of output and of value added: The general case (pp. 110 ~ )
As we saw earlier, output in the national accounts mainly consists of the value of goods and services produced in order to be sold to other agents (output not intended for sale is not recorded, with certain exceptions). As pointed out in Chapter 1, this poses a problem of aggregation, in that the sum of output measured in this way can change over time, not because more goods and services are produced but because firms are able to outsource certain activities previously carried out in-house (see Box 4.2: "the trap of internalisation and externalisation:). National accountants have therefore created the concept of value added. We shall be returning to this later.
However, even if value added is preferred to output, the concept of output is widely used in national accounts. How is it measured? Output at current prices is generally measured by sales. But an adjustment is necessary. In the case of goods, at least part of the output produced in the designated period may not be sold, and so it is stocked as inventory. Similarly, some of the goods sold in the current period may have come out of inventory (and not produced during the period). Finally, part of the output during the period may not have been completely finished and is stocked as "work in progress". In the end, output at current prices is measured as: sales plus change (positive or negative) in inventories of finished products or work in progress. This formula is regularly used to calculate output, since the data required exist in company accounts, albeit not always in easily usable form (see Box. 4.3).
Box 4.2. The trap of internalisation an externalisation
In the measurement of output, national accounts do not include "own-account" production─that is, the intermediate goods and services produced and consumed by companies internally. National accounts record own-account production of firms only when the goods are intended for investment. For example, if a company makes cars, the national accounts will not record the production of the engines that power these cars if they are manufactured by the same company. Similarly, national accounts will not include the personal services of this carmaker, if these services are provided internally. Recording the "own-account" output of intermediate goods and services result in unduly inflating the figure for total output. On the other hand, if personal services and the manufacture of engines are outsourced, in other words if the carmaker purchases these goods and services from another company, then this output will be recorded. A move from one form of organisation to another will therefore inflate total output, although in reality no new good or service has been created. Hence the attraction of the concept of value added (see Chapter 1), whose total is independent of a change in how firms are organized.
It is important to note that own-account output of capital good, such as machines or software, is recorded in the national accounts. But why is own-account output of intermediate goods not recorded? It is not recorded, because intermediate goods and services have no impact on GDP, since by definition they will be consumed during the production process. Capital goods, on the other hand, are used over longer periods of time.
Box 4.3. The problem of changes in the value of inventories
One might think it is a simple matter to use data in company accounts to determine inventory changes. However, in practice it is not so easy, because inventories generate holding gains when prices are rising and holding losses when they are falling. It is a fundamental principle of national accounts to exclude holding gains and losses in the measurement of output. Indeed, if a firm makes a holding gains by merely keeping products in inventories, this does not constitute a productive process and therefore cannot be included in GDP. As a result, it is necessary to adjust the figure for inventory changes obtained from company accounts in order to eliminate holding gains and losses on inventories.
As for the prices at which output is measured, these are the "basic price" corresponding to the revenue per unit of products sold that remain in the hands of the producer.
※ An exception among OECD countries is the USA, which
calculates its output and value added at market prices
(i.e. including taxes on products). See Chapter 12.
Basic prices therefore does not include taxes on products (for example, value-added taxes or special taxes on petroleum products or alcoholic beverages), because these amounts do not remain with the producer but are forward to the tax authorities. On the other hand, the basic price includes the subsidies received on products. Therefore, in the national accounts, the prices for exported agricultural products are not the low prices made possible by the export subsidies granted to farmers of OECD countries but the actual sales prices plus the subsidies, thus a price that is closer to the real costs of production. Finally, output in volume is compiled as output at current prices deflated by the appropriate price index.
^Intermediate consumption^ represents the value of the basic materials, components and semi-manufactured goods going into the product, as well as the value of the electricity, the cost of rents, IT services, insurance, legal and accounting services, etc., used in the production of a good or a service. In short, intermediate consumption consists of everything needed to produce other goods and services intended for sale, other than the labour of the internal workforce and the services provided by plant and machinery, offices and factory buildings.
Just as output is not equal to sales, intermediate consumption is not equal to the purchases of goods and services intended to be intermediately consumed. This is because certain intermediate goods used in the production during the period many have been bought and stocked in a previous period. Similarly, some purchases during the period may be consumed after it has ended, having been stocked in the meantime. In the end, intermediate consumption is equal to the purchases during the period ^minus^ the change (positive or negative) in the value of the inventories of goods and services for intermediate consumption. Firms often refer to these inventories as "materials inventories". Like output, intermediate consumption is a flow, corresponding to what has been consumed during a period (a year or a quarter). This leads to the exclusion from the definition of intermediate consumption of the goods used for production but not entirely consumed during the period, such as machinery or software. These capital goods are classified as "gross fixed capital formation" or GFCF.
^Value added^, as its name implies, measure the value the firm adds to the products used to manufacture the output and is equal to: output minus intermediate consumption. It can be deduced, using the definitions given earlier for the measurement of output and intermediate consumption, that value added at current prices is equal to: sales minus purchases plus total inventory changes (finished products, work in progress and materials). Value added is a central concept in national accounts. However, because it is defined as a difference between two monetary values (output minus intermediate consumption), it is not clear at first sight exactly what it represents. A useful way of defining value added at current prices is to consider it as the amount of money generated by production that remains available to pay:
- wages and salaries and social contributions (^compensation of employees^);
- production taxes (other than that on products) net of operating subsidies;
- replacement of equipment gradually worn out during production (^consumption of fixed capital^);
- interest payments on loans;
- dividends paid to shareholders;
- purchase of new equipment; and
- financial saving─or the firm's investment in financial products.
It is sometimes this approach that is used in practice to measure firms' value added at current prices in the national accounts (see box "The data sources for the value added of non-financial enterprises in France" at the end of chapter). Value added in volume is the difference between output in volume and intermediate consumption in volume.
4. The measurement of output and of value-added: Special cases
The definition of output at current prices are equal to sales plus changes in inventories of finished products and work in progress is applicable to virtually the totality of the business sector in the national accounts. This sector is also known as the ^market sector^, for which there exists a market with recorded sales, transactions and prices that permit the direct measurement of output. Note however that, even in the market sector, there are activities whose output is difficult to measure or even identify such as banks, insurance companies and retail distributors for which the definition of output based on sales does not work very well. They are all market activities, but their output is mainly purchased indirectly. Therefore an alternative measure of output is needed. Furthermore, there are large activities for which the notion of sales is non-existent, and these constitute the ^non-market sector^, covering mainly services provided by general government. The organization concerned do not sell their services, and it is therefore necessary to find a different measure of their output.
^Non-market producers^ are those that provide services, and in some cases goods, either free of charge or at prices that are not economically significant, meaning in practice prices that cover less than half the cost of production. General government bodies constitute the bulk of the non-market producers, but there are others, like the non-profit institutions (see Chapter 5). Most of the services provided by general government─defence, economic policy, foreign policy, public education and public health care─are provided to the general public without charge. These service are obviously financed through taxation and social contributions, but there is no direct link between the payment of the taxes and the level of services received. Citizens or firms are not entitled, for example, to vary their taxes based on the amount of defence or policing they want to consume. A tax is a compulsory transfer to general government and is not the price of a public service.
( ... ... )
Whether individual or collective, as there are practically no sales, non-market output at current prices is conventionally measured as equal to the sum of its production costs, including (a) the intermediate consumption; (b) the compensation of employees; (c) the consumption of fixed capital, which is the utilisation cost of equipment used by non-market producers (see following Box 4.4); and, in rare cases (d) the other taxes paid on production. Exercise 4, at the end of this chapter, shows that measurement of non-market output in the national accounts basically assumes that these are non-profit activities, a very reasonable assumption.
The general formula for measuring output from sales cannot be used to measure the ^output of banks^, because banks invoice directly only a very limited portion of their services (for example, foreign exchange commissions, cheque-handling fees, stock-market transaction fees, separately-charged financial advice), but not the bulk of their services, which is making loans. Measurement using the general formula would result in their value added being very small, if not negative; in other words, their intermediate consumption would be greater than their sales! Because banks are obviously profit-making enterprises, there is something wrong here. The fact is that bank make the bulk of their profit by borrowing at low interest rates from depositors and then lending the proceeds to other borrowers at a higher interest rate. The difference between these two interest rates, which provides the essential part of banks' remuneration, is interpreted in national accounts as their ^financial intermediation^ service. The banks are in fact intermediaries between those who want to save─mainly households─and those who want to borrow─mainly firms. Without the banks, these agents would have greater difficulty in coming together. The national accounts therefore measure the output at current prices of banks as the sum of their sales plus, approximately, the difference between the interest received from borrowers and the interest paid to lenders. This difference, which forms the bulk of the total, is known as ^financial intermediation services indirectly measured^ or FISIM (see Going Further).
Box 4.4. Is the output of general government understated? (p. 115): ... ... ...
Measuring the output of ^insurance companies^ is even more problematic than in the case of banks. ( ... ... )
When measuring output for the national accounts, ^distribution^ (both wholesale and retail) also contributes a special category. ( ... ... )
5. Nomenclatures and classifications (p. 117): ... ... ...
( ... ... )
* * *
GOING FURTHEROF WHICH:
FISIM
FISIM (financial intermediation services indirectly measured) is the term used to describe the services that banks provide to their customers but which are not invoiced.
- For bank depositors, these services generally include the management of current accounts, the sending out of bank statements and fund transfers between accounts. Instead of directly invoicing these services, the banks reduce the interest paid to depositors. This interest is in fact lower than the one customers could have obtained by lending their money directly to borrowers.
- For bank borrowers, these services include the monitoring of their creditworthiness, finance advice, the smoothing over time of repayments and the recording of these repayments for accounting purposes. The cost of these services is an inseparable part of the interest rate that the bank charges to these borrowers.
FISIM at current prices is calculated using the following (simplified) formula:
(rl－rr)×L ＋ (rr－rd)×D.
In the formula above,
- rl is the observed interest rate on loans, rr is the so-called reference rate, rd is the reference rate of deposits, L is the amount of loans, and D is the amount of deposits.
- The reference rate rr is an estimate of a pure interest rate, involving no risk element, thus corresponding to economic agents' preference for the present.
- The difference between the interest rate paid by borrowers (rl) and the reference interest rate (rr) is used to measure the price of FISIM for the borrowers.
- The difference between the reference interest rate (rr) and the rate of interest received on bank deposits (rd) is used as the price of FISIM for depositors.
- These prices are then multiplied by total borrowing, and by total deposits, in order to arrive at the total FISIM consumed by the various economic agents.
The logic of national accounts requires that if FISIM is counted in the measurement of output it must also be recorded as consumption on the part of those using these services.
- For a firm borrowing from a bank, FISIM will therefore be intermediate consumption. For a household depositing money with a bank or obtaining a loan from a bank, FISIM will be an element in final consumption expenditure.
- For a long time, national accountants had found no convincing way of allocating this output to consumers and, except in the U.S., Canada and Austalia, FISIM was conventionally regarded as intermediate consumption at the level of the economy as a whole.
- Fortunately, a solution has recently been found and adopted by all OECD countries starting in 2005. This still leaves the problem of the choice of reference interest rate. European countries have chosen a rate that is an average of the short-term inter-bank rate and certain longer-term rates, while the U.S. has chose the rate on US Treasury Bonds. The allocation between households and enterprises is made pro rata, based on the respective shares of loans and deposits of these two groups.
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