LECTURE 1: National Income Accounting and Balance of Payments

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LECTURE 1: National Income Accounting and Balance of Payments Powered By Docstoc
					  UCEAP 2002: International Political Economy and
  Financial Markets

      Introduction: Welcome to Cambridge!
      Dr Demosthenes Tambakis (PEMBROKE COLLEGE)
           8 lectures
           Email: dnt22@cam.ac.uk
           http://www.econ.cam.ac.uk/faculty/Tambakis/
      Ms Elena Loukoianova          (QUEENS’ COLLEGE)
           4 seminars
           Email: el211@hermes.cam.ac.uk
      Assessment: 45% coursework/45% final/10%
       seminar participation
UCEAP Int Pol Econ        Dr DN Tambakis                  1
  LECTURE 1: National Income Accounting and
  Balance of Payments (P. Krugman & M. Obstfeld
  International Macro: Theory and Policy, ch. 12)

      The subject of international
       macroeconomics
      Gross National Product (GNP)
           Closed economy: Y=C+I+G
           Open Economy: Y=C+I+G+[CA=X-M]
      The components of GNP: C, I and G
           GNP (the 1980s) versus GDP (the 1990s)

UCEAP Int Pol Econ      Dr DN Tambakis               2
  The Current Account (CA) Balance

      CA measures changes in a country’s wealth:
       real net exports of goods and services
      CA=X-M<0 : current account deficit
           CA<0: International borrowing
      CA=X-M>0 : current account surplus
           CA>0: International lending
      Lending/borrowing = intertemporal trade
           CA<0: import present C and export future C (US)
           CA>0: import future C and export present C (JPN)

UCEAP Int Pol Econ         Dr DN Tambakis                 3
  National Saving and the Current Account

      The key national income identities:
           National savings: S = Y - C - G
           Therefore in a closed economy: S=I
           While in an open economy: S=I+CA
      Savings can grow either by raising I or
       CA (accumulating foreign wealth)
           So a country’s CA position = its net foreign
            investment

UCEAP Int Pol Econ        Dr DN Tambakis              4
  Distinguishing Private from Government Saving

      Total national savings=Public + Private
           Definition 1: SP=Y-T-C
           Definition 2: SG=T-G
           So: SP = I+CA- SG = I+CA+(G-T)
      Government budget deficits need not always
       worsen the current account
           CA = SP – I-(G-T)
           Case study (US versus JPN) and Friedman’s paper
            (Seminar Reading 1)

UCEAP Int Pol Econ         Dr DN Tambakis                5
  The Capital Account (KA) mirrors the Current
  Account
     The KA records net exports of financial assets (IOUs)
           A credit on current account is a debit on capital account
           A surplus on CA corresponds to a deficit on KA
     The fundamental balance of payments identity
      (paired transactions): CA + KA = 0
           Capital inflows and outflows
     The statistical discrepancy: $97bn. in the US in ‘97
     Official central bank reserve transactions =foreign
      exchange (FX) and gold=BOP (Balance of Payments)
     Floating versus fixed exchange rates
           Perfect float: CA + KA = 0
           Fixed: CA+KA = -BOP : Official FX Intervention

UCEAP Int Pol Econ             Dr DN Tambakis                           6

				
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posted:4/25/2012
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