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BEA’s Measures of Capital Robert Kornfeld UNECE/Eurostat/OECD Task Force on Measuring Sustainable Development September 23-24, 2009.

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Presentation on theme: "BEA’s Measures of Capital Robert Kornfeld UNECE/Eurostat/OECD Task Force on Measuring Sustainable Development September 23-24, 2009."— Presentation transcript:

1 BEA’s Measures of Capital Robert Kornfeld UNECE/Eurostat/OECD Task Force on Measuring Sustainable Development September 23-24, 2009

2 bea.gov 2 Outline 1.BEA’s core fixed asset accounts 2.Experimental or satellite measures of capital Integrated BEA-BLS productivity accounts BEA’s R&D satellite account Human capital and home production 3.Conclusion

3 bea.gov 3 BEA’s Fixed Asset Accounts Fixed assets are produced assets, which include  Nonresidential fixed assets  Equipment and Software  Structures  Residential fixed assets (primarily housing)  Government fixed assets  Equipment and Software  Structures Valued at current cost, real cost, historical cost

4 bea.gov 4 BEA’s Fixed Asset Accounts  Perpetual Inventory Method  Net stock: S t = (1-d)*S t-1 + (1-d/2)* I t  where s t = net stock at time ‘t’  d = depreciation rate  i t = investment at time ‘t’  Depreciation M t = I t – (S t – S t-1 )  Geometric rates are used for most asset types

5 bea.gov 5 BEA’s Fixed Asset Accounts  CFC and Sustainability  CFC is the decline in the value of the stock of assets due to wear and tear, obsolescence, accidental damage, and aging.  CFC is deducted from the appropriate gross investment to obtain net investment in fixed assets. Net investment is an indicator of whether the corresponding capital stocks have been maintained intact.

6 bea.gov 6 BEA’s Fixed Asset Accounts  Measuring Fixed Assets  Asset definition and asset boundary are clear  Source data on investment is available and reliable  Prices are market prices  Depreciation used geometric rates based on research  Perpetual inventory model can be implemented

7 bea.gov 7 BEA-BLS Integrated Production Account US BLS estimates multifactor productivity (MFP) for private business MFP currently does not include General government Non-profit institutions serving households Owner-occupied housing Harper, Moulton, Rosenthal, and Wasshausen, 2009 Detailed reconciliation of BEA and BLS statistics. Integrated production account for private business sector Expands core MFP estimates to include non-market government and non-profit sectors, using BEA’s capital stock data for these sectors.

8 bea.gov 8 BEA-BLS Integrated Production Account  Why Is Integration Needed?  Decentralized statistical system in the United States – BEA, BLS, Census, FRB  Calls for integration:  System of National Accounts 1993  Jorgenson, Landefeld and Nordhaus, A New Architecture for the U.S. National Accounts  U.S. Dept. of Commerce – Measuring Innovation in the 21st Century Economy Advisory Committee  Important potential applications of integrated GDP- production accounts

9 bea.gov 9 BEA-BLS Integrated Production Account  Non-market (government, nonprofit) production  Two major challenges:  Directly measuring changes in real output  International efforts to measure volume of certain services, such as health and education, for non-market producers  Measurement of capital services requires a measure of net return  Possible approaches - Market interest rates, “real” interest rates, internal rates for other sectors.

10 bea.gov 10 The Knowledge Economy: The Importance of Updating Economic Measurements

11 bea.gov 11 BEA’s R&D Satellite Account  Provides a means of exploring the impact of capitalizing R&D spending on GDP growth  Provides a framework through which various methodological and conceptual issues can be worked out  Part of broader BEA program to improve measures of intangibles in national accounts  Why R&D?  Good data on R&D expenditures collected by the National Science Foundation for over 50 years  Numerous studies of rates of return  Greater professional agreement on its capitalization  2008 SNA recommends treating R&D expenditures as investment  BEA plans to incorporate R&D as a capital asset into the core accounts by 2013

12 bea.gov 12 R&D Satellite Account: Conceptual Challenges  Definition of the unit of R&D output  R&D output price index  Depreciation and obsolescence  Public goods qualities of R&D

13 bea.gov 13 R&D Satellite Account  Problems with Traditional Output Price Index Most R&D is produced on own account and not sold on markets.  Even when sold, the traditional price index method breaks down because R&D products are unique.  (Note – Traditional price indexes are based on repeated sales of an identical product.)  Unit of output volume is also not defined.  Must turn to indirect approaches.

14 bea.gov 14 R&D Satellite Account  Options for Output Prices Input Prices Productivity Adjusted Prices Downstream product prices  Applied in 2007 BEA R&D satellite account. Other options

15 bea.gov 15 R&D Price Index Options - Sample

16 bea.gov 16 R&D Satellite Account  Measures of Depreciation  Difficult to measure because depreciation is often related to obsolescence, which can vary immensely across intangible assets.  Depreciation rates for these intangibles are necessarily based on assumptions guided by limited evidence

17 bea.gov 17 Human Capital  BEA initiative would provide estimates of the stock of human capital, the rate at which the stock depreciates, and the returns to human capital investments.  Some limitations, largely because of limitations in source data  Limited to individuals’ investments in their human capital - - and not on-the-job training.  BEA will measure market-based investments in education, not individuals’ investments in time.

18 bea.gov 18 Summary  Expanding the capital asset boundary requires addressing numerous measurement challenges  Defining the asset and its score  Defining and measuring investment  Prices/valuation  Depreciation  Rates of return/capital services


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