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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?
[email protected]@abs.gov.au