Download BCA + BKA

National Income
Accounting &
Balance of Payment
Review of
Macroeconomics
•
1.
2.
3.
4.
To ensure the world’s scarce productive
resources (factors) to be fully employed.
Unemployment (no idle)
Saving (equal to income)
Trade imbalances (export = import; wealth)
Money and the price level(medium; spill
over)
What can be induced?
• Equilibrium vs. Balance (Condition)
• Equilibrium: a condition that all influences
are canceled by others, resulting in a stable,
balanced, or unchanging system.
• Balance: a state of equilibrium or parity
Y: National Income
Y=GNP – depreciation + net unilateral transfer
– indirect business taxes
(GNP = GDP + net receipts of factor income from rest
of world)
Y  C  I G
(closed economy)
Imports from abroad add to foreign countries’GNPs, but
do not add directly to domestic GNP
Open Economy
Y  C  I  G  EX  IM
CA  EX  IM
Y  (C  I  G )  CA
• A country with current account deficit is
importing present consumption and exporting
future consumption.
U.S.A. became a net
debtor to foreigners
SI
S Y C G
S  I  CA
Saving=Private S+Government S
S  Y T  C
p
Sg T G
S  S  S  I  CA
p
g
S  I  CA  S  I  CA  (T  G )
 I  CA  (G  T )
p
g
G-T=government budget deficit
Government Budget Deficit
worsen the Current Account
CA  S  I  (G  T )
p
Balance of Payment
Any transactions:
A Payment go foreigners
(outflow of money)
A Receipt from foreigners
(inflow of money)
Debit (--)
Purchase of assets
(capital account)
= importing
Credit (+)
Sales of assets
(capital account)
= exporting
Double-entry
bookkeeping rules
• Every international transaction
automatically enters the balance of payment
twice: once as a credit and once as a debit.
• (i.e., you pay a foreigner for goods you buy;
then the foreigner spend or store the amount
you paid.)
Example 1:
• Chinese firm exports wheat paid for by
transfer to domestic bank account:
• [+] entry in “Exports” of Current Account
• [- ] entry in Non-Official Portfolio
Investment in Capital Account.
Example 2:
• US Fund buys RMB 100 million Haier
shares using Chinese bank deposits.
• In this case there are no goods/services
flows so there is no entry in the current
account
• Two capital account transactions:
• [+] entry in Portfolio Investment
• [- ] entry in Portfolio Investment
IMF’s category of BOP .1
• Balance of Payment is a statistical statement
for a given period showing :(a) transactions
in goods, services, and income between an
economy and the rest of the world;(b)
changes of ownership and other changes in
that economy’s monetary gold, special
drawing rights (SDRs) and claims on and
liabilities to the rest of the world;
IMF’s category of BOP.2
• and (c) unrequited transfers and counterpart
entries that are needed to balance, in the
accounting sense, any entries for the
foregoing transactions and changes which
are not mutually offsetting.
• ---- adapted from Balance of Payment
Statistics Yearbook 1989, IMF
Krugman:
• A country’s balance of payments is net
purchases of foreign assets by the
home central bank less net purchases of
domestic assets by the foreign
central banks.
BOP has the following elements:
- It is a statistical statement
- of all economic transactions
- between the residents and non-residents
The distinction between accounts
• Current: Flows of goods and services
(international trade flows)
• Capital: Records asset changes (payments
or receipts for trade flows)
• Balancing Account :
U.S. Balance of Payments
Account for 1991
Credits
Current account
(1) Exports
Of which:
Merchandise
Investment income received
Other service
+704.9
+416.0
+125.3
+163.6
Debits
(2) Imports
Of which:
Merchandise
-716.6
-489.4
-108.9
-118.3
Investment income paid
Other services
(3) Net unilateral transfers
Balance on current account
[(1) + (2) + (3)]
Capital account
(4) U.S. assets held abroad
(increase —)
Of which:
+8.0
-3.7
-62.2
Official reserve assets
Other assets
(5) Foreign assets held in U.S.
(increase +)
Of which:
Official reserve assets
Other assets
Balance on capital account
[(4) + (5)]
Statistical discrepancy
[sum of (1) through (5)
with sign reversed
+5.8
-68.0
+67.0
+18.4
+48.6
+4.8
-1.1
Calculation Practice
中国国际收支结构
国际收支平衡表的恒等式
THE BALANCE-OF-PAYMENTS IDENTITY
BCA + BKA + BRA = 0 (BOPI)
Where:
BCA = balance on the current account
BKA = balance on the capital account
BRA = balance on the reserves account
BCA + BKA = - BRA
BCA = -BKA
The U.S.’s Balance-of-Payments Trend: 1980-1995
Crux
• BCA + BKA = - BRA (fixed)
• BCA = -BKA (flexible)
U.S. >strong dollar>deficit in BCA
Discrepancy
•
•
•
•
•
(page 318-321)
…different sources
…Customs inspectors vs. check to bank
…coverage, accuracy, and timing
…rounding error
The Mystery of the Missing Surplus
• the world is a closed economy, world saving
must equal world investment; world spending
must equal world output…
• the world as a whole is running a substantial
current account deficit.
①the systematic misreporting of international
interest income flows. Interest payment earned
abroad are often not reported to government
authorities in the recipient’s home country.
Such interest payments are credited directly
to a foreign bank account and do not even
cross national borders.
②Much of the world’s merchant shipping
fleet is registered in countries that do not
report maritime freight earnings to the IMF.
Error and Omission in China’s case.