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A General Equilibrium Asset-Pricing Approach to the Measurement of Nominal and Real Bank Output

A General Equilibrium Asset-Pricing Approach to the Measurement of Nominal and Real Bank Output

Chapter:
(p.273) 7 A General Equilibrium Asset-Pricing Approach to the Measurement of Nominal and Real Bank Output
Source:
Price Index Concepts and Measurement
Author(s):
J. Christina Wang, Susanto Basu, John G. Fernald
Publisher:
University of Chicago Press
DOI:10.7208/chicago/9780226148571.003.0008

This chapter presents a general equilibrium approach to measuring bank output, an approach that turns out to be quite different from Fixler's in some important respects. In contrast to deflating nominal asset holdings by a user cost price index, the chapter suggests that direct measures of the services rendered by consuming financial services be constructed and then the nominal service flows deflated by these direct measures. In resolving this controversy, a detailed model developed by user cost advocates such as Fixler can be compared to a detailed model developed by the authors, and users can decide which framework seems more reasonable. This model assumes that screening services are provided at the beginning of a contractual relationship between banks and borrowers, and it is noted that there is an issue of timing when the flow of services is measured via flows of interest that are observed during the life of the loan.

Keywords:   cost price index, Fixler, nominal service flows, nominal asset holdings, screening services, financial services

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