The Integrated Financial and Real System of National Accounts for the United States: Does it Presage the Financial Crisis?

17 Pages Posted: 25 Jan 2009 Last revised: 27 Jul 2010

See all articles by Michael Palumbo

Michael Palumbo

Board of Governors of the Federal Reserve - Flow of Funds Section; University of Houston - Department of Economics

Jonathan A. Parker

Massachusetts Institute of Technology (MIT) - Sloan School of Management; National Bureau of Economic Research (NBER)

Date Written: January 2009

Abstract

The initial implementation of the System of National Accounts (1993) for the United States by the Bureau of Economic Analysis and the Federal Reserve Board has two significant advantages for economists. First, the SNA are organized according to sectors of the economy defined by economic agents: firms, financial institutions, consumers, governments and the rest of the world. Second, the accounts integrate real and financial information, so that one can track not only production of, income from, and use of output, but also net lending, net borrowing, and net worth by sector. We exploit these two features in the SNA accounts to examine US economic history leading up to the financial crisis of 2007 and recession of 2008. First, the SNA data show recent increases in leverage in the household sector. We track the household shift to a net lending position through the capital and current accounts of the household sector and then the other SNA sectors. Second, in the financial businesses sector, the accounts largely miss the rise in exposure to the US housing market as well as the critical factors that significantly spread and amplified the housing-market related changes throughout the financial system and the real economy. Finally we present three ways in which SNA-type accounts could be improved to presage a similar future crisis.

Suggested Citation

Palumbo, Michael and Parker, Jonathan A., The Integrated Financial and Real System of National Accounts for the United States: Does it Presage the Financial Crisis? (January 2009). NBER Working Paper No. w14663, Available at SSRN: https://ssrn.com/abstract=1332602

Michael Palumbo (Contact Author)

Board of Governors of the Federal Reserve - Flow of Funds Section ( email )

Washington, DC 20551
United States
202-452-2296 (Phone)

University of Houston - Department of Economics ( email )

Houston, TX 77204-5882
United States

Jonathan A. Parker

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

100 Main Street
E62-416
Cambridge, MA
United States
617-253-7218 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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