1. FISIM at constant prices ANNE MULKAY National Bank of Belgium

2. Handbook on prices and volume measures in national accounts No directly observable price or quantity representative of FISIM output Methods for measuring FISIM at constant prices have to be based on conventions, just as the methods for measuring FISIM in current prices Two approaches to deflate FISIM, considered both as B method  Output indicator method  Application of base period margins on stocks re-valued to base period prices

3. Base period margins method  Method described in the Council regulation 448/98  Adopted in Commission regulation 1889/2002 as the method for calculation of FISIM at constant prices  The evolution of FISIM at current prices depends of the change in the two components of the calculation:  the volume component : the stocks of loans and deposits  the price component : represented by the difference between the reference rate and the effective rate of interest  Formula for FISIM at constant prices  (FISIM / Price index) X (Base period margin / Effective margin)  (Stocks/Price index) X Base period margin

4. Base period margins method (continued)  The formula only includes the evolution of stocks deflated by a general price index  Stocks are deflated to remove the influence of price changes on stocks which otherwise feed through into volume measure  Choice of deflator: must account for the change in the "price of money"  best approximation: GDP deflator, deflator of domestic demand, overall CPI Two comments  Estimation of GDP deflator or deflator of domestic demand are implied deflators, including the deflator for financial intermediation.  Another price element is missing: the effect of appreciation/depreciation of foreign currencies on stocks (Luxembourg case).

5. Example of calculation : FISIM at constant prices for 1999  Two steps calculation:  calculation of base year margins  application of the margins to stocks deflated by price index  Data required for the calculation of margins:  Stocks of base year, by counterpart sector  Accrued interest of base year, by counterpart sector  Internal and external reference rates of base year  Data required for calculations of stocks at constant prices  Stocks for the year 1999, by counterpart sector  Deflator for domestic final demand for the year 1999 (2000=100)

6. Calculation of margins for loans

7. Calculation of FISIM at constant prices on loans

8. Results 1995-2002  GDP effect of allocating FISIM at constant prices  Average 1995-2002: 1,3 %  Volatility 1995-2002: 3.4 %  Effect on GDP growth in volume: quasi nil  pm: GDP effect of allocating FISIM at current prices  Average 1995-2002: 1,3 %  Volatility 1995-2002: 18.1 %  Effect on GDP growth: variating from -0.5 % to +0,2 %

9. Volatility and the volume effect  Effect of FISIM allocation on the growth of GDP at constant prices illustrates the fact that the volatility at the level of GDP at current prices (18,1 %) is more due to changes in prices than changes in volumes (stocks).  The same conclusion can be drawn from the analysis of  index of volatility of stocks of loans and deposits  index of volatility of effective margins

10. Effect of appreciation/depreciation of foreign currencies on stocks  Stocks in foreign currencies should/must be adjusted for appreciation/depreciation effects  Stocks (t) = Stocks (t-1) + financial transactions + revaluation effects + other change in volume  An adjustment is made on stocks to exclude revaluation effects: Stocks base year + cumulated "financial transactions" + cumulated "other changes in volume" = Adjusted stocks for revaluation effect  The stocks adjusted is then deflated by a general price index

11. Example for 1999: calculation of FISIM at constant prices on loans

12. FISIM at constant prices adjusted for revaluation effect