国际金融学教师1.课件lecture national e accounts and balance of payments

1、2022/7/7Chinese Finance Research Institute1ContentsNational e AccountBalance of Payments AccountAssignments2022/7/7Chinese Finance Research Institute2I. Measuring OutputI.1 GNP and NI Gross National Product (GNP) is the market value of all final goods and services produced by a countrys factors of p

2、roduction in a given time period. It is a basic measure of a countrys national e. Usually, “the GNP a country generates over some time period must equal its national e, the e earned in that period by its factors of production. (Krugman et al, 2012, p. 296)”National e Account2022/7/7Chinese Finance R

3、esearch Institute3GNP, NNP, and NINNP=GNP-depreciationNI=GNP-depreciation + Unilateral TransferI.2 GDPWhat is the difference between GNP and GDP?In a closed economy, GDP equals GNP.In an open economy, GNP=GDP+NFI Where, NFI is the e of net factor e. National e Account2022/7/7Chinese Finance Research

4、 Institute4I.3 A SummaryThe difference between GNP and national e is by no means an insignificant amount, but macroeconomics has little to say about it, and it is of little importance for macroeconomic analysis (Krugman, et al, 2012, p.297).As a practical matter, movements in GDP and GNP usually do

5、not differ greatly (ibid., p.298).The term GNP will be used throughout in the course. Table 1-1 offers an illustration of the difference.National e Account2022/7/7Chinese Finance Research Institute5Table 1-1 Chinas GDP, GNP & NFISource: NBSC; in 100 million RMB2022/7/7Chinese Finance Research Instit

6、ute6National e AccountII. Identities in a Closed EconomyY=C+I+G * Where, Y, C, I, and G denote output, consumption, and government expenditure respectively. National e can also be divided into C, Sp( private saving), and T(taxes), thus, Y=C+Sp+T * The two measures are equivalent, henceY=C+I+G=C+Sp+T

7、2022/7/7Chinese Finance Research Institute7 By simple manipulations, one can easily obtain,I= Sp+(T-G) Where, (T-G) in the right hand is government saving (Sg). Therefore, I=S=Sp+Sg This is the identity we are quite familiar with.III. Identities in an Open EconomyIII.1 What Is An Open Economy? Cross

8、 border movements of commodity, capital & labor.National e Account2022/7/7Chinese Finance Research Institute8III.2 International Flows of CommoditiesIdentity Let X represent exports, M represent imports, Y=C+I+G+X-M Where, X-M is also referred to as net export or trade balance (a case of China is il

9、lustrated in Figure 1-1).Openness of Trade: Openness=(X+M)/Output% An example is presented in Figure 1-2.An imaginary exampleNational e Account2022/7/7Chinese Finance Research Institute9Figure 1-1 Chinas net exportSource: NBSC; in 100 million RMB2022/7/7Chinese Finance Research Institute10Figure 1-2

10、 Trade opennessSource: World Bank.2022/7/7Chinese Finance Research Institute11 e.g.1-1. An imaginary economy, Agraria, whose only output is wheat. Each citizen is a consumer of wheat, and also a farmer. Farmers invest by putting aside a portion of each years crop as seed for the following years plan

11、ting. There is also a government that appropriates part of the crop to feed the Agrarian army. Agrarias total annual crop is 100 bushels of wheat. Agraria can import milk from the rest of the world in exchange for exports of wheat. We cannot draw up the Agrarian national e accounts without knowing t

12、he price of milk in terms of wheat. Assume the price of milk is 0.5 bushel of wheat per gallon, and Agrarians want to consume 40 gallons of milk, then its imports are equal to 20 bushels of wheat. National e Account2022/7/7Chinese Finance Research Institute12Source: Krugman et al (2012), pp.299-300.

13、 The table below presents a simple calculation of the countrys national e account. Consumption is divided between wheat and milk, with 55 bushels of wheat and 40 gallons of milk (20 bushels of wheat) consumed. 25 bushels of wheat are invested, 10 are purchased by the government, and 10 are exported

14、abroad.National e Account2022/7/7Chinese Finance Research Institute13III.3 A Glimpse of Output Components Consumption The largest component of a countrys output (see Figures 1-3 and 1-4 for an illustration of both the U.S. and Chinas consumptions shares). In the U.S. the share of consumption in the

15、GDP ranges from 62-70% ever since the Korean War. China is a little bit lower, however. It seems that the U.S. has been consuming too much while on the contrary, Chinese has been consuming too little since 1970s.National e Account2022/7/7Chinese Finance Research Institute14Investment In the U.S., (g

16、ross) investment has fluctuated between 12 and 19% of GNP in recent years (Figure 1-4). However, it is quite another picture for China. As we can see from Figure 1-3 or Table 1-2, there exists a phenomenon called overheated investment in China, which is a main contributor to Chinas economic growth.

17、Notice also that investment here is definitely different from the term commonly used in Finance!National e Account2022/7/7Chinese Finance Research Institute15Government Purchases As we can see from Figures 1-3 and 1-4, there is no significant difference between the two economy.Net Export Figure 1-4

18、tells us that since the mid 1970s, the imports have been overrunning the exports in the U.S. Question Is there any linkage between the consumption and net export in an open economy?National e Account2022/7/7Chinese Finance Research Institute16Figure 1-3 Components of Chinas GNPSource: NBSC; in perce

19、ntage2022/7/7Chinese Finance Research Institute17Figure 1-4 Components of the U.S. GDPSource: St. Louis Fed. in percentage2022/7/7Chinese Finance Research Institute18Table 1-2 Contributions of C, I, & net exportsSource: NBSC. Note: Final consumption includes both private consumption (C) and governme

20、nt consumption (G). 2022/7/7Chinese Finance Research Institute19IV. Current Account and Foreign IndebtednessIV.1 Current Account, Import & Export For countries like China, net export is a major component of its current account (See Figure 1-5). In other words, if we neglect NFI, current account bala

21、nce equals to net export. Let CA denote current account balance, thus, CA=X-M if NFI=0 and net unilateral transfer equals zero too. See also Figure 1-5.National e Account2022/7/7Chinese Finance Research Institute20Figure 1-5 Chinas current accountSource: NBSC; in 100 million US$2022/7/7Chinese Finan

22、ce Research Institute21IV.2 Current Account and Net Foreign WealthNet Foreign WealthCAt=NFWt-NFWt-1 Note: Net foreign wealth=net international investment position (NIIP)=net foreign assets (NFA) See Figure 1-6 for an illustration.National e Account2022/7/7Chinese Finance Research Institute22Figure 1

23、-6 U.S. current account & NIIPSource: BEA. In billions of dollars2022/7/7Chinese Finance Research Institute23Figure 1-7 NFW of China, India and the U.S. Source: Milesi-Ferretti and Lane(2006). In billions of dollars2022/7/7Chinese Finance Research Institute24IV.3 Current Account & Domestic Absorptio

24、n As we have known that, Y=C+I+G+X-M In the right hand of the identity, C, I, and G constitutes the gross expenditures of a countrys residents. We use A hereinafter to represent this item, we then obtain, A=C+I+G In this way, current account can also be viewed as the abstraction of national e and ab

25、sorption.CA=Y-ANational e Account2022/7/7Chinese Finance Research Institute25What can we learn from CA=Y-A? Conclusions: The identity simply means that in an open economy, a countrys e must not equal to the domestic expenditures, which should be held in the closed economy. Also this equation tells u

26、s that in an open economy, resources can be allocated internationally. Table 1-3 shows the relations among these variables in China. Where Y is approximated by GDP, and column 8 is calculated according to the identity. We can see that it is the same to the time series data in column 6.National e Acc

27、ount2022/7/7Chinese Finance Research Institute26Table 1-3 Chinas absorption & eSource: NBSC; in 100 million RMB2022/7/7Chinese Finance Research Institute27IV.4 Current Account, Saving & Investment As we have seen, Y=C+I+G+X-M=C+Sp+T By simple manipulation, we have,CA=S-I, or S=I+CA Note again: S is

28、not the money deposited in the banking system, but the reminder of national e less consumption and government purchases, i.e., S=Y-C-G.National e Account2022/7/7Chinese Finance Research Institute28Conclusion: An open economy can save either by building up its capital stock or by acquiring foreign we

29、alth,but a closed economy can save only by building up its capital stock (Krugman et al, 2012, p.303).Private and government savingsPrivate Saving is defined as the part of disposable e that is saved rather than consumed. Private saving, denoted by Sp, can be expressed asSp=Y-T-CNational e Account20

30、22/7/7Chinese Finance Research Institute29Government Saving is defined as the government e less its consumption. Let Sg stand for government saving, then, Sg=T-G The two types of saving we have defined above add up to a countrys national saving, i.e., S=Sp+Sg Thus, CA=(Sp-I)+(T-G)National e Account2

31、022/7/7Chinese Finance Research Institute30I. Balance of PaymentsI.1 Definition A countrys Balance of Payments keeps record of economic transactions between a countrys residents and its non-residents in a given time period, usually in a year.Flow vs. stockResident vs. non-resident The International

32、Monetary Fund (IMF) has ever offered an explanation to the concept.Balance of Payments Account2022/7/7Chinese Finance Research Institute31Economic transactionsTransactions among financial assets and goods and servicesBartersTransactions among financial assets, such as securities tradingUnilateral go

33、ods and services transferUnilateral financial assets transferBalance of Payments Account2022/7/7Chinese Finance Research Institute32I.2 AccountsCurrent accountGoods (visible trade) and services (invisible trade) e. The item basically includes compensation of employees, and investment e Current Trans

34、fers are distinguished from capital transfers, which are included in the capital and financial accountBalance of Payments Account2022/7/7Chinese Finance Research Institute33Capital and financial accountCapital Account. The major components of the account are capital transfers and acquisition/disposa

35、l of non-produced, non-financial assets Capital transfers include (i)transfers of ownership of fixed assets, (ii)transfers of funds linked to, or conditional upon, acquisition or disposal of fixed assets; (iii)forgiveness or cancellation, without any counterparts being received in return, of liabili

36、ties by creditors. Balance of Payments Account2022/7/7Chinese Finance Research Institute34Financial Account This includes direct investment, portfolio investment, other investment and reserve assets Errors & omissions account “In practice, however, when all actual entries are totaled, the resulting

37、balance will almost inevitably show a net credit or a net debit. That balance is the result of errors and omissions in the compilation of statements.”Balance of Payments Account2022/7/7Chinese Finance Research Institute35II. Accounting PrinciplesAny transaction resulting in a receipt from foreigners

38、 is entered in the balance of payments accounts as a credit. Any transaction resulting in a payment to foreigners is entered as a debit. II.1 Examples of Paired Transactions e.g.1-2. Imagine you buy a typewriter from the Italian company Olivetti and pay for your purchase with a RMB1,000 check. The t

39、ransactions may be recorded as follows. Source: Krugman et al (2012).Balance of Payments Account2022/7/7Chinese Finance Research Institute36 e.g. 1-3. Suppose during your travels in France, you pay RMB200 for a dinner at the Restaurant de lEscargot dOr. You place the charge on your credit card. The

40、transactions may be recorded as follows. Source: Krugman et al (2012).Balance of Payments Account2022/7/7Chinese Finance Research Institute37 e.g.1-4. Financial account transactions. Imagine your uncle Sid buys a newly issued share of stock in the U.K. oil giant British Petroleum (BP). He places his

41、 orders with his stockbroker, paying RMB95. Source: Krugman et al (2012).Balance of Payments Account2022/7/7Chinese Finance Research Institute38Balance of Payments Account e.g.1-5. Suppose Chinas banks forgive RMB5,000 in debt owed to them by the government of the imaginary country of Bygonia. In th

42、is case, China makes a RMB5,000 capital transfer to Bygonia, which appears as a RMB5,000 entry in the capital account. The associated credit is in the financial account, in the form of a RMB5,000 reduction in Chinas assets held abroad. Source: Krugman et al (2012). Also, see the table below. 2022/7/

43、7Chinese Finance Research Institute39Balance of Payments AccountII.3 Balance of Payments IdentityCurrent Account+Capital Account+Financial Account=0II.4 ExamplesThe U.S. ChinaRefer to Table 1-4 and Table 1-5.2022/7/7Chinese Finance Research Institute40Table 1-4 The U.S. balance of payments (2006)Sou

44、rce: BEA. In billions of dollars2022/7/7Chinese Finance Research Institute41Table 1-5 Chinas balance of payments (2006)Source: SAFE, in thousands of dollars2022/7/7Chinese Finance Research Institute42III. Further Analysis of the Balance of PaymentsIII.1 Trade Balance A measure of real resource trans

45、fers, the development of the economy, and the balance of payments.III.2 Current Account Balance When the account is in surplus, the balance must be realized by the net outflow of capital or the increase in official reserves. The exact reverse also holds.Balance of Payments Account2022/7/7Chinese Finance Research Institute43III.3