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This paper makes three points regarding the proper measurement of the output of financial intermediaries. Two of them concern the measurement of nominal financial output, especially banking output. First, the authors show that, to impute the nominal value of implicitly priced financial output, it is necessary to adjust each reference rate of interest (also called "The user cost of funds") for the risk inherent in that corresponding financial transaction. Second, they argue that, according to finance theory, the required risk correction can be implemented practically at the level of industries (e.g., the banking sector as a whole). The third point concerns the construction of a financial services price index, and thus applies to the measurement of real output.
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