1st Meeting Eurostat Task Force Luxembourg October 4-5 2010 Susan Kluth and Derick Cullen Financial...

1st Meeting Eurostat Task ForceLuxembourg October 4-5 2010Susan Kluth and Derick Cullen

Financial Intermediation Services Indirectly

Measured (FISIM) and the Consumer Price

Index (CPI):The Australian Experience

FISIM in ABS Macroeconomic StatisticsData & Methods in deriving FISIM for CPI Concepts, Scope and Policy IssuesMethods IssuesCost of FundsProblem AreasConclusionContacts

Contents

FISIM in ABS Macroeconomic Statistics

In national accounts and balance of payments since 1998

reviewed in 2009 2008SNA / BPM6global financial crisis

In Quarterly CPI since 2005experimental from 2000reviewed 2010historical review (16th Series)global financial crisis

SNA: FISIM and Interest

Data & Methods in deriving FISIM for CPI

Data sourceDerivationReference ratesWeightingImpacts

Sample product iDerive constant price balance Bi * CPIt/CPI0Calculate average interest rate (yield) on each type of account

Yi

Calculate difference between product yield and reference rate

Yi - RR (loans)RR -Yi (deposits)

Multiply by indexed balance to determine interest margin on product

Mi = (Yi - RR)*Bi * CPIt/CPI0 (loans)Mi = ( RR-Yi)*Bi * CPIt/CPI0 (deposits)

calculate a price index for each product based on the margin movements and then aggregate the product indexes

P= Sum Pi

Data and Method of Calculating FISIM in CPI

Data source is special report to ABS of balance and price data for retail products

Yields and Reference Rates

Impact on CPI

Weight in CPI is significant ~ 4% of expenditure, dependent on how FISIM calculated

Conceptual and Policy Issues

SNA, BPM and ILO Prices Manual: FISIM part of household consumption

ILO manualFISIM is Monetary Final Expenditureindirect measurement not an issuepart of ref aggregate #1 (outlays CPI)part of ref aggregate # 2 (acquistions CPI)

Australia does acquistions CPI"Investment related" expenditures

Policy Feedback:CPI FISIM and Cash Rate

answer is disclosure, not omission

SamplingAggregation and PredictabilityWeighting ProceduresInstitutional Indexes and Reference RatesData Quality and SensitivityInertia

Methods Issues

Sampling Issues

Predictability:Index Replication

Aggregation: Compositional Change

Weighting Procedures

Other Issues

Institutional Indexes and Reference Ratesinstitutional reference rates perform better

Data Quality and Sensitivityhypersensitive

–large balances–small margins–large weights

weightingInertia

not of large concern

Cost of Wholesale FundsRationale

in GFC spreads of bank wholesale funding to cash / deposits / goverment bonds widened

loan rates increasedbut not a margin increase

Cost of Funds with single reference rateaccording to standards

Cost of Funds with Multiple reference ratesanalogy to retail margins: sales less cost of

goods soldcost of goods different for deposits and loans

Bank Funding Ratios

Cost of Funds: Single Reference Rates

Cost of Funds: Single Reference Rate Outcomes

Cost of Funds: Multiple Reference Rates

Cost of Funds: Multiple Reference Rate Outcomes

Problem Areas

Fixed Rate ProductsCost of Funds and HedgingFair ValuesSecuritisationInterpretation of FISIM Statistics

Fixed Rate Products

Options...(a) reference rates tailored to fixed rate characteristics (debtor approach)(b) adjust balances to account for current yields (creditor approach)

Adjusting Fixed Rate Product Yields

Fixed rate adjustment: one bank

Fixed rate adjustment: next bank

Other Problem Areas

Hedging and measuring cost of fundsSNA, derivatives and "income"

Fair value changes for loansscope for FISIMimpact of write-offs/write backs on margin

policyTreatment of securitised loans

sale to vehicle: cost of funds for FISIMlook through: relevance of deposits

Interpretability: Nominal and Volume Indexes

Interpretability: Nominal and Volumes with cost of funds

Conclusions: FISIM in CPI

conceptual criticisms not validhypersensitivity

data quality and methodsincremental improvements possible

significant conceptual and methods issuesfixed rate products, hedging, fair values,

reference ratessolutions seem to indicate "more data"

Predictability and Interpretabilitydetailed data and methods disclosures

Questions?

Contactssusie.kluth@abs.gov.aud.cullen@abs.gov.au