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Measuring Wealth and Financial Intermediation and Their Links to the Real Economy$
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Charles R. Hulten and Marshall B. Reinsdorf

Print publication date: 2015

Print ISBN-13: 9780226204260

Published to Chicago Scholarship Online: September 2015

DOI: 10.7208/chicago/9780226204437.001.0001

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Financial Intermediation in the National Accounts

Financial Intermediation in the National Accounts

Asset Valuation, Intermediation, and Tobin’s q

(p.125) 5 Financial Intermediation in the National Accounts
Measuring Wealth and Financial Intermediation and Their Links to the Real Economy

Carol A. Corrado

Charles R. Hulten

University of Chicago Press

Where in the national economic activity statistics could one see a major financial crisis approaching, or track its progress? The financial intermediation sector seems the natural place to look first, because it was the epicenter of the recent crisis that originated in the mortgage market and spread throughout the financial sector and then the real economy. But where is this sector located in the current national accounting system and how well it is connected to the rest of the economy? We approach this second question by placing financial intermediation at the center of a modified circular flow model in which nonfinancial businesses and households are linked by financial intermediaries, rather than treating these intermediaries as just another resource-using industry. Treating intermediation in this way helps explain how shocks that affect even small parts of the economy can propagate rapidly and widely. Our accounting framework also allows us to treat asset bubbles and their consequences as disequilibrium phenomena, rather than imposing a priori the assumption of asset market equilibrium on the collection and organization of macro data. We use this framework to measure Tobin’s average q ratio over the period 1960 to 2012, as well as the degree of financial leverage.

Keywords:   national accounts, financial crisis, financial intermediation, financial accounts

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