Chapter

Incorporating Financial Services in A Consumer Price Index

Edited by Dennis Fixler

in Price Index Concepts and Measurement

Published by University of Chicago Press

Published in print February 2010 | ISBN: 9780226148557
Published online February 2013 | e-ISBN: 9780226148571 | DOI: http://dx.doi.org/10.7208/chicago/9780226148571.003.0007
Incorporating Financial Services in A Consumer Price Index

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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

Chapter.  12430 words.  Illustrated.

Subjects: Econometrics and Mathematical Economics

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