Transcript balance of payments

Section III overview
From international Micro economy to open-Macro
economy
 About macro economy target : price, growth,
employment, balance of payments, and Just
distribution.
 The core property of open-Macro economic is
how an economy can get the internal- and external
equilibrium
 What should we learn from section III?_ an
integrated model of exchange rate and output
determination
 This section comprises of 6 chapters, namely 121
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
Chapter 12 National Income Accounting and
the Balance of Payments
 Introduction
 The
National Income Accounts
 National Income Accounting for an Open
Economy
 The Balance of Payment Accounts
 Summary
2
Introduction

Microeconomics
 It studies the effective use of scarce resources from
the perspective of individual firms and consumers.

Macroeconomics
 It studies how economies’ overall levels of
employment, production, and growth are determined.
 It emphasizes four aspects of economic life:
 Unemployment
 Trade imbalances
 Saving
 Money and the price level
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Introduction
 The
national income accounts and the
balance of payments accounts are essential
tools for studying the macroeconomics of
open, interdependent economies.
 National income accounting
Records all the expenditures that contribute to a
country’s income and output
 Balance
of payments accounting
Helps us keep track of both changes in a
country’s indebtedness to foreigners and the
fortunes of its export- and import-competing
industries
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The National Income Accounts
 Gross
national product (GNP)国民生产
总值
The value of all final goods and services
produced by a country’s factors of production
and sold on the market in a given time period
It is the basic measure of a country’s output.
Real and nominal GNP with GNP price
inflator
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The National Income Accounts
 GNP
is calculated by adding up the market
value of all expenditures on final output:
Consumption
The amount consumed by private domestic residents
Investment
The amount put aside by private firms to build new
plant and equipment for future production
Government purchases
The amount used by the government
Current account balance
The amount of net exports of goods and services to
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foreigners
The National Income Accounts2000
7
U.S. GNP and Its Components, 2003
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China`s real GDP and components
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The National Income Accounts
 National
Product and National Income
National Income
It is earned over a period by its factors of production.
It must equal the GNP a country generates over
some period of time.
One person’s spending is another’s income (i.e., total
spending must equal total income).
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The National Income Accounts

Capital Depreciation, International Transfers, and
Indirect Business Taxes
Adjustments to the definition of GNP:
Depreciation of capital
It reduces the income of capital owners.
It must be subtracted from GNP (to get the net national product).
Net unilateral transfers of income
They are part of a country’s income but are not part of its product.
They must be added to the net national product.
Indirect business taxes
They are sales taxes.
They must be subtracted from GNP.
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The National Income Accounts
 Gross
Domestic Product (GDP)
It measures the volume of production within a
country’s borders.
It equals GNP minus net receipts of factor
income from the rest of the world.
It does not correct for the portion of countries’
production carried out using services provided
by foreign-owned capital.
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National Income Accounting
for an Open Economy
 Consumption
The portion of GNP purchased by the private
sector to fulfill current wants
 Investment
The part of output used by private firms to
produce future output
 Government
Purchases
Any goods and services purchased by federal,
state, or local governments
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National Income Accounting
for an Open Economy

The National Income Identity for an Open
Economy
 It is the sum of domestic and foreign expenditure on
the goods and services produced by domestic factors
of production:
Y = C + I + G + EX – IM
(12-1)
where:
 Y is GNP
 C is consumption
 I is investment
 G is government purchases
 EX is exports
 IM is imports
 In a closed economy, EX = IM = 0.The National
Income Accounts
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China`s real GDP and components
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National Income Accounting
for an Open Economy
 The
Current Account and Foreign
Indebtedness
Current account (CA) balance
The difference between exports of goods and
services and imports of goods and services (CA =
EX – IM)
A country has a CA surplus when its CA > 0.
A country has a CA deficit when its CA < 0.
CA measures the size and direction of international
borrowing.
A country’s current account balance equals the change
in its net foreign wealth.
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National Income Accounting
for an Open Economy
CA balance is equal to the difference between
national income and domestic residents’
spending:
Y – (C+ I + G) = CA
CA balance is goods production less domestic
demand.
CA balance is the excess supply of domestic
financing.
Example: U.S. CA deficit P. 297
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Figure 12-2: The U.S. Current Account and Net Foreign Wealth Position,
1977-2003
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US Current Account As a Percentage
of GDP(1960-2004)
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美国经常项目余额（1960-2004）
billions of current dollars
100
0
-100 1960
1965
1970
1975
1980
1985
1990
1995
2000
-200
-300
-400
-500
-600
-700
year
Source: Bureau of Economic Analysis, US Department of Commerce
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中国经常项目余额(1984-2004)
数据来源：中国国际收支表1982-2004
CA
CA
19
84
19
86
19
88
19
90
19
92
19
94
19
96
19
98
20
00
20
02
20
04
80000
70000
60000
50000
40000
30000
20000
10000
0
-10000
-20000
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National Income Accounting
for an Open Economy
 Saving
and the Current Account
National saving (S)
The portion of output, Y, that is not devoted to
household consumption, C, or government
purchases, G.
It always equals investment in a closed economy.
A closed economy can save only by building up its capital
stock (S = I).
An open economy can save either by building up its capital
stock or by acquiring foreign wealth (S = I + CA).
A country’s CA surplus is referred to as its net
foreign investment.
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National Income Accounting
for an Open Economy
 Private
and Government Saving
Private saving (Sp)
The part of disposable income that is saved rather
than consumed
Sp = I + CA – Sg = I + CA – (T – G) = I + CA + (G
– T) (12-2)
T is the government's “income” (its net tax revenue)
Sg is government savings (T-G)
Government budget deficit (G – T)
It measures the extent to which the government is
borrowing to finance its expenditures.
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Inverse Relationship Between
Public Saving and Current Account?
US current account and public saving relative to GDP,
1960-2004
Percent of GDP
4%
2%
0%
-2%
-4%
-6%
-8%
1960
1965
1970
1975
1980
current account
1985
1990
1995
2000
public saving
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中国国内储蓄、投资与外国资本流入（1984-2004）
19
85
19
87
19
89
19
91
19
93
19
95
19
97
19
99
20
01
20
03
14000000
12000000
10000000
8000000
6000000
4000000
2000000
0
国内储蓄
投资
外国资本流入
外国资本流入数据来源于中国国际收支表，外国资本表示FDI、银行贷款及、证券
投资及短期资金之和，数据按当年汇率水平转换成人民币表示。国内储蓄、投资
（指固定资本形成）数来源于国际金融统计。
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财政赤字与经常项目(中国数据1989-2004)
数据来源:《中国统计年鉴》2005
4000.00
2000.00
2004
2002
2003
2001
1999
2000
1997
1998
1995
1996
1993
1994
1992
1990
1991
-2000.00
1989
0.00
-4000.00
财政收支差额
进出口差额
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28
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The Balance of Payments
Accounts
 A country’s balance of payments is a summary statement


in which all the transactions of the residents of this
country with the residents of all others are recorded
during a particular period of time
Every international transaction automatically enters the
balance of payments twice: once as a credit (+) and once
as a debit (-)_ Double –entry
The rules of entry : Any transaction which induce the
increase of foreign exchange supply and debt , the
decrease of claim enters credit(+) ; Any transaction which
induce the increase of demand for foreign exchange and
claim, the decrease of debt enters debit(-).
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The Balance of Payments Accounts

Three types of international transactions are recorded in the balance
of payments:
 CA shows the transaction of real economy, namely: Exports or
imports of goods or services, income and unilateral transfers of
goods or services
 Financial account shows up the international settlements and
transactions of financial assets; Any transaction of
international financial assets with central bank enters the
international reserve account
 Unilateral transfers of wealth between countries are recorded in
the capital account, when they are involved in the transfers
of financial assets; They are recorded in the CA, when they
are involved in the transfers of goods or service
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The Balance of Payments
Accounts
 Examples
of Paired Transactions
A U.S. citizen buys a $1000 typewriter from
an Italian company, and the Italian company
deposits the $1000 in its account at Citibank
in New York.
That is, the U.S. trades assets for goods.
This transaction creates the following two offsetting
entries in the U.S. balance of payments:
It enters the U.S. CA with a negative sign (-$1000).
(induces the increase of demand for foreign exchange)
It shows up as a $1000 credit in the U.S. financial
account. (induces the increase of debt to nonresidents)
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国际收支记账法则
一中国外贸公司进口货物，价值100万美圆，货到
后三个月付款
 一旅游公司组织新、马、泰游，向对方支付10万美
圆
 我国在海啸灾害中向受灾国捐赠2亿美圆，其中1亿
为物资
 松下公司在杭州扩大投资2000万美圆，1千万为进
口设备， 1千万为现金
 我国向世界银行借款1亿美圆
 中国银行卖给中央银行一亿美圆balance
charter.doc

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The Balance of Payments Accounts
A U.S. citizen buys a $95 newly issued share
of stock in the United Kingdom oil giant British
Petroleum (BP) by using a check drawn on
his stockbroker money market account. BP
deposits the $95 in its own U.S. bank account
at Second Bank of Chicago.
That is, the U.S. trades assets for assets.
This transaction creates the following two offsetting
entries in the U.S. balance of payments:
It enters the U.S. financial account with a negative sign (-
$95).
It shows up as a $95 credit in the U.S. financial account.
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The Balance of Payments Accounts
 The
Fundamental Balance of Payments
Identity
Any international transaction automatically
gives rise to two offsetting entries in the balance
of payments resulting in a fundamental identity:
Current account + financial account + capital
account = 0 (12-3)2004
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The Balance of Payments Accounts
Table 12-2: U.S. Balance of Payments Accounts for 2000
(billions of dollars)
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The Balance of Payments Accounts
Table 12-2: Continued
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The Balance of Payments Accounts
 The
Current Account, Once Again
The balance of payments accounts divide
exports and imports into three categories:
Merchandise trade
Exports or imports of goods
Services
Payments for legal assistance, tourists’ expenditures,
and shipping fees
Income
International interest and dividend payments and the
earnings of domestically owned firms operating abroad
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The Balance of Payments Accounts
 The
Capital Account
It records asset transfers and tends to be
small for the United States.
 The
Financial Account
It measures the difference between sales of
assets to foreigners and purchases of assets
located abroad.
Financial inflow (capital inflow)
A loan from the foreigners with a promise that they will be
repaid
Financial outflow (capital outflow)
A transaction involving the purchase of an asset from
foreigners
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The Balance of Payments Accounts
 The
Statistical Discrepancy
Data associated with a given transaction may
come from different sources that differ in
coverage, accuracy, and timing.
This makes the balance of payments accounts
seldom balance in practice.
Account keepers force the two sides to balance by
adding to the accounts a statistical discrepancy.
It is very difficult to allocate this discrepancy
among the current, capital, and financial accounts.
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The Balance of Payments Accounts
 Official
Reserve Transactions
Central bank
The institution responsible for managing the supply
of money
Official international reserves
Foreign assets held by central banks as a cushion
against national economic misfortune
Official foreign exchange intervention
Central banks often buy or sell international
reserves in private asset markets to affect
macroeconomic conditions in their economies.
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The Balance of Payments Accounts
Official settlements balance (balance of
payments)
The book-keeping offset to the balance of official
reserve transactions
It is the sum of the current account balance, the capital
account balance, the nonreserve portion of the financial
account balance, and the statistical discrepancy.
Example: The U.S. balance of payments in 2000 was -$35.6
billion, that is, the balance of official reserve transactions with
its sign reversed.balance charter.doc
A country with a negative balance of payments may
signal that it is running down its international reserve
assets or incurring debts to foreign monetary authorities.
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The Balance of Payments Accounts
 Case
Study: Is the United States the
World’s Biggest Debtor?
At the end of 1999, the United States had a
negative net foreign wealth position far greater
than that of any other single country.
The United States is the world’s biggest debtor.
However, the United States has the world’s
largest GNP.
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图 中国对外收支不平衡的扩大与外汇
储备的增加

44
中国案例:外汇储备如何运用?

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Summary
 A country’s
GNP is equal to the income
received by its factors of production.
GDP is equal to GNP less net receipts of factor
income from abroad, measures the output
produced within a country’s territorial borders.
 In
a closed economy, GNP must be
consumed, invested, or purchased by the
government.
In an open economy, GNP equals the sum of
consumption, investment, government
purchases, and net exports of goods and
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Summary
 The
capital account records asset transfers
and tends to be small in the United States.
 Any current account deficit must be matched
by an equal surplus in the other two
accounts of the balance of payments, and
any current account surplus by a deficit
somewhere else.
 International asset transactions carried out
by central banks are included in the financial47
Summary
 All
transactions between a country and the
rest of the world are recorded in its
balance of payments accounts.
 The current account equals the country’s
net lending to foreigners.
National saving equals domestic investment
plus the current account.
Transactions involving goods and services
appear in the current account of the balance
of payments, while international sales or
purchases of assets appear in the financial
account.
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Readings
 王月溪“解读中国国际收支平衡表：结构特
征、形成动因、调整方向及政策建议”《管
理世界》2003年4期
 方文“对国际收支危机传染的比较研究”
《世界经济》2000年6期
 王一萱“资本项目国际收支危机与东南亚金
融危机”《国际金融研究》2001年10期
 杨柳勇“中国国际收支的超前结构：特征、
形成原因、变动趋势和调整方向”
《世界经济》2002年11期
49