The value added and operating surplus deflators for industries: The right price indicators that should be used to calculate the real interest rates

Itsuo Sakuma, Masako Tsujimura, Kazusuke Tsujimura

Research output: Contribution to journalArticle

Abstract

After the global financial crisis of 2008-2009, many advanced economies are suffering from a dearth of domestic investment opportunities. It has been said that lowering real interest rate is the best policy to boost the capital investment. The problem is what inflation rate they have in their mind when the entrepreneurs make investment decisions. Not only the output prices, but also the composition of inputs differ from one industry to another. Therefore, the value added deflator or even the operating surplus deflator for each industry are better alternative to calculate the real interest rate. In the first half of the paper, we examine the theoretical meaning of the value added deflators using a highly simplified symmetric input output table. In the latter half, we will use so-called SNA-IO, the input-output table published as a part of Japanese SNA, to experimentally estimate both value added and operating surplus deflators. The study reveals that if lowering interest rate depreciate the local currency, it will depress value added deflators, and in turn, will discourage capital investments. In this sense, lowering interest rate is a double-edged sword; the governments and central banks should think twice before taking such a policy.

Original languageEnglish
Pages (from-to)235-253
Number of pages19
JournalStatistical Journal of the IAOS
Volume34
Issue number2
DOIs
Publication statusPublished - 2018

Keywords

  • GDP deflator
  • National accounts
  • double deflation
  • symmetric input-output table
  • use table

ASJC Scopus subject areas

  • Management Information Systems
  • Economics and Econometrics
  • Statistics, Probability and Uncertainty

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