Scarica Understanding the Balance of Payments: Current, Capital, and Financial Accounts e più Schemi e mappe concettuali in PDF di Macroeconomia solo su Docsity! INTERNATIONAL MACROECONOMICS International transactions: transactions between residents and non residents. Transaction: transfer of real or financial assets from an economic agent to another Resident: agent whose focus of economic interest is in the reporting country All international transactions get recorded. Correspondent (given as payments) can be financial, real or non existent. BALANCE OF PAYMENTS (BOP): The Balance of payments is a system of accounts that tracks all payments and receipts deriving from international transactions over a given period. It is kept by each country. 3 BOP accounts: -Current account: transactions with real assets. Registers real transactions regarding produced goods and services, plus those unilateral transfers which do not involve, directly or indirectly, the property of capital assets: →imports and exports of produced goods and services, income payments and receipts (primary income), current unilateral transfers (secondary income). 2 sub accounts (trade balance, income balance) -Capital account: minor item. Registers unilateral transfers in capital account, i.e. involving, directly or indirectly the property of capital assets or debt forgiveness, and transactions regarding non produced, non financial assets → unilateral transfers in capital account received and paid, acquisitions and disposals of natural resources, marketing assets, contracts leases and licences -Financial account: registers financial transactions : → purchases and sales of physical assets or financial assets (equity and debt claims) carried over by private agents, governments or central banks. BOP SUB ACCOUNTS: CURRENT AND CAPITAL ACCOUNT BALANCE Balance: credits-debits (in current/capital account) FINANCIAL ACCOUNT ENTRIES: net changes in foreign assets and liabilities Financial account entries: Δassets- Δ liabilities=financial account balance (ROW=rest of the world) (LDC=less developed country) The financial account shows how net foreign borrowing is financed, or how net foreign lending is allocated. Δ liabilities are > Δ assets ! deficit so we’re net foreign borrower( increase your debt position) DA AGGIUNGERE LA DELLA TABELLA RULES FOR BOP ACCOUNTING Every international transaction gives rise to 2 entries in the BOP accounts. current unilateral transfer: remittance current current: opposite signs current financial: same signs Because of these huge amount of remittances there is a positive capital balance (ex. filippini hanno tanti migranti che mandano a casa remittances) Ireland has a negative income balance of 15.2%. Negative primary income balance because Ireland is a big foreign debtor BOP’S ACCOUNTING IDENTITY CA+ka=FA Notice that this identity should hold in theory, but in practice (with real data) the financial account balance never coincides exactly with the sum of the current account and capital account balances, due to Statistical Discrepancies (Errors and Omissions). ! Entries and balances in the BOP accounts, like those in the national income and product accounts, represent economic flows (which are quantities measured in units of currency or goods per unit of time or measurable over an interval of time), rather than stocks (which are quantities measured at fixed points in time)! Income received is greater than income we paid there is a positive primary income balance Positive balance in portfolio investment ! net increase in assets ! stock, bonds i buy are bigger than the stocks, bonds etc i sell so i am a net lender BOP’S IDENTITY CA=FA because ka is very small. - if CA<0 then FA<0: a current account deficit corresponds to and exactly equal financial account deficit i.e. to an exactly equal accumulation of net financial liabilities towards the rest of the world ! Net foreign borrowing - if CA >0 then FA >0: a current account surplus corresponds to an exactly equal financial account surplus i.e. to and exactly equal accumulations of net financial assets on the rest of the world ! net foreign lending The current account balance reflects a country’s net borrowing needs. CA<0: the country needs foreign borrowing CA >0:the country needs foreign lending The current account balance reflects a country’s net borrowing needs, and determines a change of a country’s net debit/credit position with respect to the rest of the world. Are current account deficits bad?
They increase a country’s net debt to the rest of the world. Whether this is bad or not may depend on what is financed with the foreign borrowing associated with current account deficit….. THE NET INTERNATIONAL INVESTMENT POSITION( NET EXTERNAL WEALTH)
A country’s net credit/debit position on the rest of the world is called Net International Investment position or Net External Wealth.
From flows to stocks NIIP is A-L (net external assets- net external liabilities)
