SYNTHETIC RETURNS ON NIPA ASSETS - AN INTERNATIONAL COMPARISON

The components of national income and product - such as consumption, i nvestment, government purchases, exports, and imports - may be usefull y viewed as nontraded assets that yield flows of 'dividends' over time . Many open questions in public finance and macroeconomic policy, such as the appropriate interest rate for discounting Social Security paym ents, depend critically on the risk and return properties of NIPA comp onents. This paper presents some measurements on the risk and return o f NIPA components, using the Campbell-Shiller (1988) model which assum es constant expected returns. We find that the returns to NIPA compone nts are (i) more volatile than growth rates; and (ii) the returns to c onsumption, investment, and government purchases are very highly corre lated with own-country output returns. The correlations between trade variables and output are weaker. Looking across countries, we find tha t the correlation between the returns on consumption and output are ve ry similar to the correlation between the growth rates of these variab les. (C) 1998 Elsevier Science B.V. All rights reserved.