INTERNATIOANAL FINANCE

INTERNATIOANAL FINANCE

CHAPTER 12

National Income Accounting National Income Accounting

&&

Balance of PaymentsBalance of Payments国民收入核算与国际收支

Review National income identity for a closed economyNational income identity for a closed economy

: , GNP , GNP or NIY output

: consumptionC

: goverment purchasesG

: investmentI

Y C I G

National income identity for an open economy

: exports : importsEX IM

Y C I G EX

Internal economy

external economy

The GNP identity for open economies shows how theThe GNP identity for open economies shows how thenational income a country earns by selling its goods andnational income a country earns by selling its goods andis divided between sales to domestic residents and sales is divided between sales to domestic residents and sales

to foreign residents.to foreign residents.

IM

The Current Account and Foreign Indebtedness

Current account balance (CA): Current account balance (CA): The difference between exports of goods and The difference between exports of goods and services and imports of goods and services.services and imports of goods and services.

EX IM

then Current Account

then Current Account

If EX – IM < 0,

If EX – IM > 0,

CA ( )Y C I G

CA

Deficit

Surplus

经常项目余额

Absorption Approach to Balance of Payments

( )CA Y C I G

AAbsorption

CA Y A

If If CA < 0,CA < 0, then then Y < Y < A.A.If If CA > 0,CA > 0, then then Y > Y > A.A.

国际收支吸收分析法

Policy Implication of the Theory

CA Y A

If If CA < 0,CA < 0, then then Y < AY < A

If If CA > 0,CA > 0, then then Y > AY > A

..

..

∵ ∵ A = C + I + G A = C + I + G

∴ ∴ Fiscal policy should be used .Fiscal policy should be used .

The above expression implies that an open economy can save either by building up its capital stock or by acquiring foreign wealth.

Saving and Current Account

The expression

implies that a closed

economy can save

only by build-ing up

its capital stock.

national saving

S = Y – C - G

∵ ∴ S = I

National saving always equals investment plus current account balance.

In an open economy

∵ ∴ S = I + CA

In a closed economy

National saving always equals investment.

= C + I +

GY + I + G

+ CA

Y

=

C - - + - -=

Two – Gap Theory

∵ CA = EX - IM

∴ S = I + (EX - IM)

In an open economy

∴

Forex gap

Saving gap

S - I = EX - IM

If S<I, then EX – IM, and vice versa.

Balance of Payments AccountsA country’s balance of payments accounts keep A country’s balance of payments accounts keep

track of both its payments to and its reciepts from track of both its payments to and its reciepts from

foreigners .foreigners .

Three types of international transactions:Three types of international transactions:

1. exports and imports of goods and servises1. exports and imports of goods and servises

2. purchase or sales of financial assets2. purchase or sales of financial assets

3. other transfers of wealth between countries3. other transfers of wealth between countries

Simple rule of double-entry bookkeeping

Every international transaction Every international transaction automatically enters the balance of payments automatically enters the balance of payments twice , once as a credit and once as a debit.twice , once as a credit and once as a debit.

Relative concepts ( I )Capital account: international asset movement Capital account: international asset movement

resulting from nonmarket activitiesresulting from nonmarket activities

Financial account: all international purchases Financial account: all international purchases or sales of financial assetsor sales of financial assets

Financial (or capital) flowsFinancial (or capital) flows

Financial (or capital) inflow Financial (or capital) inflow

purchase or sale purchase or sale of an asset from of an asset from or to foreigners or to foreigners

purchase of purchase of an asset from an asset from foreignes foreignes

sale of an asset sale of an asset to foreigners to foreigners

Financial (or capital) outflow Financial (or capital) outflow

资本帐户或资本项目

金融帐户或金融项目

资本流动

资本内流

资本外流

Relative concepts ( II )Statistical discrepency :Statistical discrepency :

CA + Capital account + Net foreign assets heldCA + Capital account + Net foreign assets heldOfficial international reserves :Official international reserves :

foreign assets held by central banks as a cushion foreign assets held by central banks as a cushion against national economic misfortuneagainst national economic misfortune

Official foreign exchange intervention : Official foreign exchange intervention : central banks buy or sell international reserves central banks buy or sell international reserves in private asset marketin private asset market

CA + Capital account + Net foreign assets heldCA + Capital account + Net foreign assets held

foreign assets held by central banks as a cushion foreign assets held by central banks as a cushion against national economic misfortuneagainst national economic misfortune

central banks buy or sell international central banks buy or sell international reserves in private asset marketreserves in private asset market

统计误差

官方国际储备

官方外汇干预

Fundamental BOP IdentityCurrent account + Capital account + Financial account = 0Current account + Capital account + Financial account = 0

CFACFA

CA + CFA = 0CA + CFA = 0 or or CA = - CFACA = - CFA

Question

Thanks