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Incorporating Financial Services in A Consumer Price Index

Incorporating Financial Services in A Consumer Price Index

Chapter:
(p.239) 6 Incorporating Financial Services in A Consumer Price Index
Source:
Price Index Concepts and Measurement
Author(s):
Dennis Fixler
Publisher:
University of Chicago Press
DOI:10.7208/chicago/9780226148571.003.0007

This chapter describes a case for including the transactions costs in a Consumer Price Index, and a user cost model for the treatment of financial services, in which the prices of loan and deposit services are represented by the difference between the corresponding interest rates. A risk-free reference rate is also presented. The author constructs various alternative household financial services price indexes using quarterly data from the Bureau of Economic Analysis over the period 1987–2003. There are two controversial components in the author's experimental indexes: the reference rate(s) of return used to calculate the nominal user costs of household bank deposits and household bank loans, and the deflator(s) used to convert nominal financial service flows into real flows.

Keywords:   Consumer Price Index, financial services, Economic Analysis, reference rate, cost model

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