Professional Documents
Culture Documents
Chapter Three
Chapter Outline
Balance of Payments Accounting Balance of Payments Accounts
The Current Account The Capital Account Statistical Discrepancy Official Reserves Account
Note: When we say a countrys balance of payments we are referring to the transactions of its citizens and government.
3-3
3-6
Statistical Discrepancy
There are going to be some omissions and misrecorded transactionsso we use a plug figure to get things to balance. Exhibit 3.1 shows a discrepancy of $190.9 billion in 2009.
3-8
3-9
2
3
Imports
$19.2
($2,405.6)
($149.4) ($419.8) ($221.0) ($549.4) ($93.5)
Unilateral Transfers Balance on Current Account Capital Account 4 5 6 7 Direct Investment Portfolio Investment Other Investments Balance on Capital Account
($52.2)
3-11
2
3
Imports
$19.2
($2,405.6)
($149.4) ($419.8) ($221.0) ($549.4) ($93.5)
Unilateral Transfers Balance on Current Account Capital Account 4 5 6 7 Direct Investment Portfolio Investment Other Investments Balance on Capital Account
In 2009, the U.S. imported more than it exported, thus running a current account deficit of $419.8 billion.
($52.2)
3-12
2
3
Imports
$19.2
($2,405.6)
($149.4) ($419.8) ($221.0) ($549.4) ($93.5)
Unilateral Transfers Balance on Current Account Capital Account 4 5 6 7 Direct Investment Portfolio Investment Other Investments Balance on Capital Account
($52.2)
During the same year, the U.S. attracted net investment of $281.1 billionclearly the rest of the world found the U.S. to be a good place to invest.
3-13
2
3
Imports
$19.2
($2,405.6)
($149.4) ($419.8) ($221.0) ($549.4) ($93.5)
Unilateral Transfers Balance on Current Account Capital Account 4 5 6 7 Direct Investment Portfolio Investment Other Investments Balance on Capital Account
Under a pure flexible exchange rate regime, these numbers would balance each other out.
($52.2)
3-14
2
3
Imports
$19.2
($2,405.6)
($149.4) ($419.8) ($221.0) ($549.4) ($93.5)
Unilateral Transfers Balance on Current Account Capital Account 4 5 6 7 Direct Investment Portfolio Investment Other Investments Balance on Capital Account
($52.2)
3-15
2
3
Imports
$19.2
($2,405.6)
($149.4) ($419.8) ($221.0) ($549.4) ($93.5)
Unilateral Transfers Balance on Current Account Capital Account 4 5 6 7 Direct Investment Portfolio Investment Other Investments Balance on Capital Account
($52.2)
3-16
Exchange rate $
P S
2
3
Imports
$19.2
($2,405.6)
($149.4) ($419.8) ($221.0) ($549.4) ($93.5)
Unilateral Transfers Balance on Current Account Capital Account 4 5 6 7 Direct Investment Portfolio Investment Other Investments Balance on Capital Account
D Q
($52.2)
3-17
Exchange rate $
P S
2
3
Imports
$19.2
($2,405.6)
($149.4) ($419.8) ($221.0) ($549.4) ($93.5)
Unilateral Transfers Balance on Current Account Capital Account 4 5 6 7 Direct Investment Portfolio Investment Other Investments Balance on Capital Account
D Q
($52.2)
3-18
Exchange rate $
P S
2
3
Imports
$19.2
($2,405.6)
($149.4) ($419.8) ($221.0) ($549.4) ($93.5)
Unilateral Transfers Balance on Current Account Capital Account 4 5 6 7 Direct Investment Portfolio Investment Other Investments Balance on Capital Account
D Q
($52.2)
3-19
Exchange rate $
P S S1
2
3
Imports
$19.2
($2,405.6)
($149.4) ($419.8) ($221.0) ($549.4) ($93.5)
Unilateral Transfers Balance on Current Account Capital Account 4 5 6 7 Direct Investment Portfolio Investment Other Investments Balance on Capital Account
D Q
($52.2)
3-20
Following a currency depreciation, the trade balance may at first deteriorate before it improves. The shape depends on the elasticity of the imports and exports. As an example, consider an imported good for which there is no domestic producer. If demand is price inelastic, then following a depreciation the trade balance gets worse (until domestic production begins).
Time
3-22
3-23
3-24
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