Objectives of the Chapter

This chapterlooks at how international exchanges of goods, services, and financial assetsare recorded in official statistics. Two sets of statistics are presented: thebalance of payments accounts and the international investment positionaccounts. The trade, current, financial, and official settlements accounts arespecialized accounts within the balance of payments accounts, and are derivedby grouping international transactions according to common characteristics.

Although thedetails of international accounting may seem a bit dry, there are two importanteconomic uses for the accounts. The first use is in determining therelationship between the saving of a country’s residents and the amount ofcapital formation going on in that country: S = I_d + I_f =CA. So, for example, if country A is running a current account deficit we knowthat it is saving less than it is investing at home (S<I_d) andthat other countries are investing in country A (I_f < 0). Second,if there is a large difference between the value of the current account and thevalue of the financial account, it means that the country’s monetaryauthorities must be actively engaging in the buying or selling of officialreserve assets.

After studyingChapter 16 you should know

     1.    what informationthe balance of payments accounts record.

     2.    the distinctionbetween debit and credit entries.

     3.    the meaning andscope of various accounts’ balances.

     4.    why the currentaccount balance equals the difference between national product and nationalexpenditure.

     5.    the concept of anoverall balance of payments surplus or deficit.

     6.    the meaning andusefulness of the balance on international investment.

     7.    the historicalstatus of theU.S.as net creditor or debtor with respect to the rest of the world.