INTERNATIOANAL FINANCE

CHAPTER 12 National Income Accounting & Balance of Payments 国民收入核算与国际收支

Review National income identity for a closed economy

National income identity for an open economy Internal economy external economy The GNP identity for open economies shows how the national income a country earns by selling its goods and is divided between sales to domestic residents and sales to foreign residents.

The Current Account and Foreign Indebtedness Current account balance (CA): The difference between exports of goods and services and imports of goods and services. then Current Account then Current Account If EX – IM < 0, If EX – IM > 0, Deficit Surplus 经常项目余额

Absorption Approach to Balance of Payments A A bsorption If CA < 0,then Y < A. If CA > 0,then Y > A. 国际收支吸收分析法

Policy Implication of the Theory If CA < 0,then Y < A If CA > 0,then Y > A.. ∵ A = C + I + G ∴ 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 Accounts A country’s balance of payments accounts keep track of both its payments to and its reciepts from foreigners. Three types of international transactions: 1. exports and imports of goods and servises 2. purchase or sales of financial assets 3. other transfers of wealth between countries

Simple rule of double-entry bookkeeping Every international transaction automatically enters the balance of payments twice, once as a credit and once as a debit.

Relative concepts ( I ) Capital account: international asset movement resulting from nonmarket activities Financial account: all international purchases or sales of financial assets Financial (or capital) flows Financial (or capital) inflow purchase or sale of an asset from or to foreigners purchase of an asset from foreignes sale of an asset to foreigners sale of an asset to foreigners 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 : CA + Capital account + Net foreign assets held Official international reserves : foreign assets held by central banks as a cushion against national economic misfortune Official foreign exchange intervention : central banks buy or sell international reserves in private asset market CA + Capital account + Net foreign assets held foreign assets held by central banks as a cushion against national economic misfortune central banks buy or sell international reserves in private asset market 统计误差 官方国际储备 官方外汇干预

Fundamental BOP Identity Current account + Capital account + Financial account = 0 CFA CA + CFA = 0 or CA = - CFA

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