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6. High inflation

 The issue

It has long been recognized that high inflation can distort measures of property income, since a portion of the property income is required simply to counteract the real holding losses that occur for financial instruments that are not indexed for inflation.  By the 1970s, when inflation was an important problem throughout much of the world, the treatment of interest under high inflation was considered an important issue for national accounts.  However, over the last decade there has been a lack of consensus on the treatment of interest under high inflation.  The guidance given by Annex B to chapter XIX of System of National Accounts 1993 is not in agreement with chapter 7 of the OECD manual on Inflation Accounting.  At the 1998 IARIW conference, papers were presented in support of each approach, and a spirited debate took place between the proponents of the two recommended treatments.  Subsequently, the ISWGNA established an electronic discussion group (EDG) to address the problem.  The results of the EDG, however, were inconclusive, as reported in a paper presented to the first meeting of the AEG.1  At that meeting, the topic was accepted as part of the agenda for the SNA update.

Although some work was done on the topic during the update, including a note prepared by Marshall Reinsdorf of the U.S. Bureau of Economic Analysis, the topic received only limited attention and a consensus was not reached on the best approach.  An issue paper presented at the fourth AEG meeting in Frankfurt, citing “the lack of a single universally accepted treatment of interest under high inflation,” recommended that the subject should remain on the research agenda—a recommendation accepted by the AEG.2  
1 See World Bank, “Accounting for interest under high inflation,” SNA/M1.04/14, paper for information presented at first meeting of the Advisory Expert Group on National Accounts, 16-20 February 2004,
2  “AEG issue number 8:  Interest under high inflation,” paper for information presented at fourth meeting of the Advisory Expert Group on National Accounts, 30 January–8 February, 2006,

 Reasons for inclusion in the Research Agenda

The main reason that the topic was not brought to conclusion during the SNA update is that it was pushed aside by higher priority topics.  The issue of high inflation is a somewhat technical, conceptual issue that may not easily be resolved by a short presentation or discussion.  If the full attention of national accounts experts is brought to clarify the issue, however, it seems possible that a satisfactory set of recommendations can be made.  If a paper or set of papers could be prepared, presented, and discussed at an appropriate forum (for example, the OECD’s Working Group on National Accounts or a similar international forum), it seems likely that a consensus could be reached.

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