In Luxembourg we could be tempted to congratulate ourselves for specialising in an industry with above average real growth and below average price inflation. But is this really the case or is it an artefact of how prices are measured in financial intermediation?
When banks double the value of the assets and liabilities on their balance sheet, this does not necessarily double the number of transactions, or the amount of labour or physical capital required to produce the necessary services. This observation seems to undermine the justification for deflating asset values using a general price index such as the GDP deflator or the consumer price index.