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UN-ECE/Eurostat/OECD Meeting on National Accounts April 2008 Geneva

Agenda item 2a Invited paper 4. UN-ECE/Eurostat/OECD Meeting on National Accounts April 2008 Geneva. Measuring Capital Services OECD. Contents. Background Basic idea: what are capital services? Purpose of capital services measures. Background.

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UN-ECE/Eurostat/OECD Meeting on National Accounts April 2008 Geneva

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  1. Agenda item 2a Invited paper 4 UN-ECE/Eurostat/OECD Meeting on National AccountsApril 2008 Geneva Measuring Capital Services OECD

  2. Contents • Background • Basic idea: what are capital services? • Purpose of capital services measures

  3. Background • 2003: United Nations Statistical Commission (UNSC) calls for update of the 1993 System of National Accounts • Canberra II Group dealt with issues concerning the measurement of non-financial assets • This included also capital services measurement in the national accounts • Result: capital services are now recognised in the revised SNA but implementation is up to countries

  4. What are capital services? (1) • Anyonewhoisfamiliarwith the user costapproachtowardsowner-occupiedhousingalreadyknowswhat capital services are • But some more explanationmaybehelpful • There are two aspects to capital: • It is a storage of wealth (wealth aspect) • It has a role in the production of goods and services (production aspect)

  5. What are capital services? (2) • Wealth aspect • Captures the market value of capital goods valuation of the stock atmarketprices • The appropriate entry for balance sheets • Corresponds to the net capital stock in the SNA93 • Production aspect • Captures the flow of productive services from capital into production • The appropriate variable for productivitymeasurement • Requires a different stock measure – the productive stock

  6. What are capital services? (3) • Volume of capital services • Assumed to beproportional to the productive stock • Then, volume growth of productive stock = volume growth rate of capital services • Productive stock • Takesintoaccountefficiencyloss of olderasset an age-efficiency profile isapplied • Wealth stock • Takesintoaccount total value loss of olderasset an age-price profile isapplied

  7. What are capital services? (4) • Price of capital services =User costs per unit of productive stock • Main elements of user costs: • Real rate of return (r) • Rate of CFC (d) • Real holding gains/losses (left out in simplified approach)

  8. What are capital services? (5) • Total value of capital services • Price of K-services * Productive stock • Simplestform: (r+d)p*K • This corresponds to the user costapproachtowardsowneroccupiedhousing (ignoringintermediate inputs)

  9. Purpose of capital services measures (1) • Normally, no linkbetween value-added and capital, except for CFC as the measurethatbrings us from GOS to NOS • Capital services measuresestablish the linkbetween capital input and value-added: • Total value of capital services canbeequatedwith GOS (plus the capital part of mixed income)

  10. Purpose of capital services measures (2) • Consequence: the incomeside of the accountcanbe de-composedinto a price and into a volume component • Price component: wages and prices of capital services (=user costs) • Volume component: numbersemployed and volume of capital services • With volume measures for labour and capital, combinedmeasures of volume inputs canbecomputed • Volume output/volume input = MFP

  11. Capital measures in SNA93 Time series of GFCF by type of asset all expressed at same mid-year prices Retirement profile Net capital stock Balance sheets Age-price or depreciation profile Consumptionof fixed capital Net domesticproduct

  12. Integrated system of capital measures Time series of GFCF by type of asset all expressed at same mid-year prices rate of return Productive capital stock/capital services by asset Age-efficiency profile User costs of capital Total capital services Retirement profile Age-price profile Net capital stock Balance sheets Deprieciation profile Consumption of fixed capital Net domesticproduct

  13. The distinction between net capital and capital services matters empirically: example USA

  14. Conclusions • Capital services measuresaddsignificantanalytical value to national accounts – price/volume split of incomeside and productivitymeasurement • Capital services, net capital stock, CFC and GFCF shouldform a consistent and integrated set • Implementationrequires extra effort but much of the empiricalrequirements are alsoneeded for good qualitymeasures of CFC and net stocks

  15. More details… • Forthcoming chapter in revised SNA • OECD Capital Manual • Draft version on OECD website • Final version available by June 2008 • Contact: Paul.Schreyer@OECD.org

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