MACROECONOMIC STATISTICS

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MACROECONOMIC STATISTICS

Sponsored by a Grant TÁMOP-4.1.2-08/2/A/KMR-2009-0041 Course Material Developed by Department of Economics,

Faculty of Social Sciences, Eötvös Loránd University Budapest (ELTE) Department of Economics, Eötvös Loránd University Budapest

Institute of Economics, Hungarian Academy of Sciences Balassi Kiadó, Budapest

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2 Author: Gábor Oblath

Supervised by Gábor Oblath January 2011

Week 5

External and internal balance/imbalance:

conceptual and measurement issues Part I

Outline

Part I

• Conceptual issues

• Interpreting and applying BOP statistics for analyses Part II (see Week 6)

• The relative size of external deficits – ”Dark matter”?

– International comparisons

• Decompositions

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3

Interpreting external balance/imbalance

• Flows?

– Trade balance – Current account

– NL/NB

– Overall balance (dR)

(J. Meade: distinction between ”autonomous” vs. ”accommodating”

transactions – is this applicable?)

• Changes in stocks?

– dNFA [-dNFL]= IIP = net national wealth (FA) –>

• Valuation effects

• Portfolio decisions

Theories on the BOP: balances explained

 where do they ”draw the line?”

BOP Theories/approaches X–M

=NX elasticity/absorption

+NFI+NFTc

=CA +NFTk

=NL

+FINA+NEO

=dR

intertemporal, twin deficits

portfolio-, FDI-theories monetary approach

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4

According to the current view

• Stocks and changes in stocks matter

• Beside current financing needs:

– Relative size and composition of net foreign liabilities (NFL) – dNFL

– Thus: valuation effects also matter (Lane & Milesi-Ferretti)

NFL/GDP

-20 0 20 40 60 80 100 120

EST HU CR LAT PO BG LI SK RO CZ SL

NFDI

NFDebt NFL

Source: Lane–Milesi-Ferretti (2006)

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5

Interpretation of BOP statistics

• Identities

• Information from the BOP for analysis

The change in international reserves is the only fix point (dR)

• CA + KA + FINA + NEO = dR

• (CA + KA + FINA + NEO – dR = 0) Rearrangements: NL=

• CA + KA = -(FINA – dR + NEO)  ”From above”

• CA + KA + NEO = -(FINA - dR)  ”From below”

NEO is the error term for the whole BOP

• CA + KA + dR = -(FINA+ NEO)

• NEO = dR – (CA+KA) – FINA

Numerical example

CA+KA+FinA+NEO-dR

CA+KA FinA dR NEO sum

1. -100 100 0 0 0

2. -100 80 -10 10 0

3. -100 120 40 20 0

4. -100 100 -50 -50 0

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6

Decomposition: dNFA (a)

Decomposition: dNFA (b)

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7

dNFA from the domestic side

• dNFA – [(KG +other volume) + NEO] = CA + KA  S – I +KT =

= (Sg +KTg – Ig) + (Sp +KTp – Ip)

KT: capital transfer; S: savings; I investment; g, and p: government and private

Information based on BOP: examples from Hungarian data

(In percent of GDP)

• [d(nfa) = -d(nfl)]

• Decomposition

– Current (+”capital”) transactions vs. others – Composition of current transactions

• Financing and financial flows

– FDI vs. non-FDI; debt vs. non-debt – Gross vs. net

• Stocks

– FA, FL, NFL – Composition

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8

(a) d(nfa)

• nfa1-nfa0 = d(nfa)–nfa0 [(y/(1+y)]

• (nfl = –nfa)

• d(nfa)= transactions + revaluations + others

• Transactions: dR–FINA= CA+KA+NEO

dR-FINA-NEO = CA+KA

”from below” ”from above”

Nfl1–nfl0 = d(nfl)–nfl0 [(y/(1+y)]

HU: 1996–2009

-15%

-10%

-5%

0%

5%

10%

15%

20%

1996. 1997. 1998. 1999. 2000. 2001. 2002. 2003. 2004. 2005. 2006. 2007. 2008. 2009.

d(nfl) -nfl0*y/(1+y)

=nfl1-nfl0

-5%

0%

5%

10%

15%

20%

1996. 1997.

1998. 1999.

2000. 2001.

2002. 2003.

2004. 2005.

2006. 2007.

2008. 2009. d(nfl)

nfl0(y/1+y)

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9

d(nlf) =transactions vs. kg+other kg: revaluation/GDP

Transactions (nl ”from below”= ca+ka+neo)

-12,0%

-10,0%

-8,0%

-6,0%

-4,0%

-2,0%

0,0%

2,0%

4,0%

1995. 1996. 1997. 1998. 1999. 2000. 2001. 2002. 2003. 2004. 2005. 2006. 2007. 2008. 2009.

NEO CA+KA CA+KA+NEO

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10

nl (”from above”) = ca+ka and components:

NX, NFI, NFTC, NFTK

(b) Financing: Financial transactions

• Financial account (FINA)

– FINA= CA+KA+NEO – dR, vagy – (FINA+NEO)= CA+KA – dR

• Balance

• Composition

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

1995. 1996.

1997. 1998.

1999. 2000.

2001. 2002.

2003. 2004.

2005. 2006.

2007. 2008.

2009. CA+KA

NXgs NFI NFTC+NFTK

-12%

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

1995. 1996. 1997. 1998. 1999. 2000. 2001. 2002. 2003. 2004. 2005. 2006. 2007. 2008. 2009.

NFTC+NFTK NFI NXgs CA+KA

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(b/1) Finacing in % of GDP -fina=(ca+ka–neo)–dr

From another point of vew – (fina+neo)=(ca+ka)–dr

-20%

-15%

-10%

-5%

0%

5%

10%

15%

1995. 1996. 1997. 1998. 1999. 2000. 2001. 2002. 2003. 2004. 2005. 2006. 2007. 2008. 2009.

CA+KA+NEO=

-FINA+

dR

-20%

-15%

-10%

-5%

0%

5%

10%

15%

1995. 1996. 1997. 1998. 1999. 2000. 2001. 2002. 2003. 2004. 2005. 2006. 2007. 2008. 2009.

-(FINA+NEO) CA+KA dR

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(b/2) Composition of financing fdi vs. non- fdi; debt vs non-debt

fdi vs. non-debt (gross)

-2,0%

0,0%

2,0%

4,0%

6,0%

8,0%

10,0%

12,0%

1995. 1996. 1997. 1998. 1999. 2000. 2001. 2002. 2003. 2004. 2005. 2006. 2007. 2008. 2009.

fdi(bruttó)

nem adóssággeneráló(bruttó)

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13

Non-debt vs. debt

(c) Stocks/GDP

• nfl = (fa – fl)

NFL/GDP (nfl = fl – fa)

0%

20%

40%

60%

80%

100%

120%

140%

160%

180%

200%

220%

1995. 1996.

1997. 1998.

1999. 2000.

2001. 2002.

2003. 2004.

2005. 2006.

2007. 2008.

2009. fa

fl nfl

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14

FDI/GDP (fdi)

Liabilities, assets (net) – equity and debt

fdi vs. equity*/

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1995. 1996. 1997. 1998. 1999. 2000. 2001. 2002. 2003. 2004. 2005. 2006. 2007. 2008. 2009.

fa(fdi) fl(fdi) nfl(fdi)

0%

10%

20%

30%

40%

50%

60%

70%

80%

1995. 1996. 1997. 1998. 1999. 2000. 2001. 2002. 2003. 2004. 2005. 2006. 2007. 2008. 2009.

fa(eq) fl(eq) nfl(eq)

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15

Gross and net foreign debt/GDP a) FDI with „other capital” b) without it

0%

20%

40%

60%

80%

100%

120%

140%

160%

1995. 1996. 1997. 1998. 1999. 2000. 2001. 2002. 2003. 2004. 2005. 2006. 2007. 2008. 2009.

fa(debt1) fl(debt1) nfl(debt1)

0%

20%

40%

60%

80%

100%

120%

140%

160%

1995. 1996. 1997. 1998. 1999. 2000. 2001. 2002. 2003. 2004. 2005. 2006. 2007. 2008. 2009.

fa(debt2) fl(debt2) nfl(debt2)