nternational Monetary Economics
rockshan19977
Topic12021.pptxIME International Monetary Economics
2021
Topic 1 – The balance of Payments
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What is this course about
International Economics deals with the economic and financial interdependence among nations – its analyses the flows
of goods and services,
payments and currencies
between a nation and the rest of the world, policies directed at regulating these flows and their effect of the nations welfare.
International trade: focuses on the microeconomics of international economics
In this course we focus on the MACRO ECONOMIC aspects of international economics
The focus is on international financial flows and the prices that drive them – exchange rates and interest rates
The relationship between the real economy and the international financial flows
Issues such as global current account imbalances the implications of the UK leaving the EU, trade and monetary flows - COVID 19
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Recommended Text (available online)
International Macroeconomics
2015c ISBN 9780170355674 Edition 1 98 Pages
AU / NZ
Published: 2014 by Cengage Learning Australia
https://cengage.com.au/product/title/pp0966---
international-macroeconomics/isbn/9780170355674
Other useful texts
Feenstra R.C and Taylor A, International Economics, Worth publishers
Salvatore d “ International Economics” Wiley and sons
Krugman P. Obstfeld (2009) international Economic.
Theory & Policy. Pearson
Additional materials will be posted on canvas
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Topics covered sequentially over 12 weeks
1. Balance of payments and national income accounting 2. Intertemporal Model of the Current Account 3. Exchange Rate Determination in the Short-Run and Long-Run
3b: Exchange Rate Determination in the Short-Run and Long-Run 4. Elasticities and Absorption Approaches to the Current Account 5. The Real Exchange Rate and Non-Tradable Goods 6. Macroeconomic Policy in an Open Economy- IS/LM/BP
6b. Macroeconomic Policy in an Open Economy- IS/LM/BP 7. Choice Of Exchange Rate Regime
8A. Digital currency and Central banks 8. Topics in International Macroeconomics – Optimum Currency Areas and Crises
Tutorial Questions are available on canvas under each topic
Do the exercises prior to attending online tutorial class
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Assessment Task 1: 5 Online MCQ tests
Marks: 10%, Each test = 2%
Submission: Complete via Canvas in weeks 4,5,7,11,12
The online test will be accessed via canvas and will remain open to complete Monday to Monday in the scheduled week.
Full release dates and times can be seen in the course summary on canvas
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Assessment Task 2 : Part A Group Executive Summary report
Marks: 20%
2A (1) Formative Assessment: Completed group work tasks topics 1 - 4 for feedback = 5%
2A (2) Executive Summary Report (1200 -1500 words) and associated research appendices (no word limit). = 15%
Submission 1: Week 6: April 18th : Interim work for feedback - demonstrated group collaboration relating to Topics 1-4 Via canvas
Submission 2: Week 10: May 16th : Final report and associated appendices. Via Canvas
Group assignments: Marks to each member of the group is allocated based on an 'equal contribution' criteria. This is verified via the group assessment cover sheet that all group members must sign prior to submission and include in the assessment submission. The assignment cover sheet can be accessed via the following link ..
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Assessment Task 2 : Part B Group Presentation
Marks: 20%
Required:
Submission: End week 10- : Submit max 5 minute multimedia presentation via canvas - 20%
The video can be a recording of a presentation using software in Studio ,(go to the main menu on the menu on left hand side in canvas)or screencast, . Details will be discussed in tutorial classes.
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Assessment Task 3: Summative Final individual assessment - Essay
Marks: 50%
Submission: June 13th 2021 CLO's: 1,2,3,4,5,6 The Task: The final assessment will be an individual essay / report relating to all topics. The essay title and instructions will be released via canvas. Word limit: 4,500 words
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Reserve Bank of Australia Useful resources
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Sign up to get free access to some covid related content
https://www.economist.com/news/2020/03/11/the-economists-coverage-of-the-coronavirus
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Economics Observatory https://www.coronavirusandtheeconomy.com/
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EXPLORING ECONOMICS
https://www.exploring-economics.org/en/
CORE ECONOMICS
https://www.youtube.com/c/CoronaNomics/videos
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Topic 1: Balance of payments and National income accounting
Contents
Balance of Payments Accounting
Foreign Debt
National Income Accounting and the Open Economy
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The World Economy
The world economy has become increasingly interconnected:
Globalization: markets exceed national boundaries; increased mobility of workers, products, and information.
Real Sector: production and sale of goods and services.
Financial Sector: transactions in global, foreign, or domestic financial assets.
“Because globalisation is nothing but the reflection of the growing interdependence of national economies, and since Balance of Payments/International Investment Position Statistics are precisely designed to record such interdependence in the most faithful possible way, it follows that the more globalisation progresses, the more interest there is in such statistics both from the economic and the policymaking viewpoints” Ref ECB
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Trade deficits The U.S. current account deficit, which reflects the combined balances on trade in goods and services and income flows between U.S. residents and residents of other countries, narrowed by $0.1 billion, or 0.1 percent, to $104.2 billion in the first quarter of 2020, according to statistics from the U.S. Bureau of Economic Analysis (BEA). The revised fourth quarter deficit was $104.3 billion.
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The United States runs a trade deficit with all its five major trading partners: China, Mexico, Japan, Germany, and Canada
America’s largest trade deficit is with China
The United States imports more goods than it exports because its trading partners can produce these at much better prices or quality
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Recent research from the Productivity commission
Over the past two centuries, foreign funding has supported Australia’s economic development by permitting more capital investment than domestic savings would have otherwise allowed
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Learning objectives – Topic 1
Understand how a country’s international transactions are recorded - What the balance of payment is and what it measures
Understand the meaning of credits and debits, and double entry bookkeeping
Explain why the current account balance is economically important
Relate the current account balance to changes in a country’s net foreign wealth
Utilise national income accounting identities to explore the relationship between savings, investment and the current account.
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NATIONAL INCOME MEASURES AND BOP
National income is often defined to be the income earned by a nation’s factors of production.
Gross national product (GNP) is the value of all final goods and services produced by a nation’s factors of production in a given time period.
Gross domestic product (GDP) measures the final value of all goods and services that are produced within a country in a given time period.
GNP = GDP
+ payments from foreign countries for factors of production
– payments to foreign countries for factors of production
Gross National Product (GNP) is the total value of final goods and services produced during a given period by the citizens of a country no matter where they live. The goods and services are produced by the “nationals” of the country.
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E.g. Differences in GDP and GNP
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BALANCE OF PAYMENTS ACCOUNTING
Definition: The balance of payments (BOP) accounts measures all international economic transactions between the residents of a country and foreign residents in a given period of time.
The BOP is constructed on the basis of double entry book keeping
Each transaction is recorded twice: once as a credit and once as a debit.
If you have to pay a foreign resident, (e.g – Imports) normally in exchange for something that you bring into the country, then that something counts as a debit.
If a foreign resident has to pay you (e.g exports) for something, then the something counts as a credit.
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Simple example
Import a car from Japan
Debit on BOP (pay foreign resident)
Export currency in exchange
Credit on BOP
But which sub accounts?
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Credit
Debit
Export JPY in exchange for car
Import Car -
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Balance of payments accounting
Composed of two primary sub accounts, the Current Account and the (Capital) Financial Account:
Current account: CA records flows of goods, services, income on assets and unilateral transfers
(Capital)Financial account: FA records flows of assets
In addition, the Official Reserves account (ΔIR) tracks government currency transactions
A fourth account, the Net Errors and Omissions account is produced to preserve the balance of the BOP.
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Current Account (CA)
Measures a country's net exports of goods and services (NX) and net international income receipts (NI = income earned on foreign assets owned by domestic citizens minus income paid on domestic assets owned by foreigners -including interest payments, dividends and profits).
It also includes unilateral transfers
- Exports are recorded as a credit (+) on the current account.
Imports are recorded as a debit (-) on the current account.
An entitlement to the receipt of income from abroad is recorded as a credit. The obligation to make a payment of income to a foreign resident is recorded as a debit.
A current account surplus is where credits exceed debits, that is when exports and income received from abroad are greater than imports and income paid to foreign residents.
A current account deficit is where debits exceed credits.
CA = (NX + NI)
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Link to ABS balance of payments data
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OECD data – Current account balance
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Balance on goods and services - AU
In seasonally adjusted terms, the balance on goods and services was a surplus of $8,025m in May 2020, an increase of $195m on the surplus in April 2020.
Credits (exports of goods and services) In seasonally adjusted terms, goods and services credits fell $1,604m (4%) to $35,742m. Non-rural goods fell $1,080m (4%), rural goods fell $404m (10%) and non-monetary gold fell $219m (12%). Net exports of goods under merchanting remained steady at $45m. Services credits rose $99m (2%).
Debits (imports of goods and services) In seasonally adjusted terms, goods and services debits fell $1,799m (6%) to $27,717m. Consumption goods fell $1,233m (14%), intermediate and other merchandise goods fell $821m (8%) and capital goods fell $412m (7%). Non-monetary gold rose $710m (113%). Services debits fell $43m (1%).
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CA : Note:-– Income on foreign assets – iFA
What is Investment Income?
Payment to holders of foreign financial assets, including:
Interest on bonds and loans
Dividends and other claims on profits by owners of foreign businesses
Payments made to temporary (nonresident) workers
What are unilateral transfers?
Official government grants in aid to foreign governments
Charitable giving (e.g., famine relief)
Migrant workers transfers to families in their home countries
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Financial Account (FA)
Net change in foreign ownership of investment assets
Measures the difference between sales of assets to foreigners and purchases of foreign owned assets.
Sales of assets to foreigners be it direct, portfolio, investment in financial derivatives or other investment (including currency and deposits) is recorded as a credit entry on the financial account.
Purchases of assets located abroad are recorded as a debit entry on the financial account. (import the asset)
FA = – ΔNFA = Change in Net Foreign Assets
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Notes: OECD statistics
In the financial account, for net value, a positive sign (credit) indicates a net flow from the domestic economy to the rest of the world (a lending to the rest of the world) and a negative sign, a net flow from the rest of the world to the domestic economy (i.e. a net borrowing from the rest of the world) .
At the level of the sub items (investment abroad investment in the reporting economy etc.), a positive sign indicates an increase of the sub item under consideration and a negative sign a decrease.
These conventions are imposed by the BPM6.
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Financial account data -
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Inverse Relationship Between CA and FA
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Credit
Debit
Current account (CA)
Merchandise
Services
Primary income (iNFA)
Secondary income (remittances, transfers)
Financial Account (= – ΔNFA)
Foreign assets owned by domestic (FA)
Domestic assets owned by foreigners (FL)
Change in Official Reserves
(= – ΔIR)
Exports
Exports
Received
Received
Decrease
Increase
Decrease in R
Imports
Imports
Paid
Paid
Increase (Buy)
Decrease
Increase in R
Errors & Omissions (Statistical Discrepancy)
= Sum of credits minus sum of debits
Fundamentals of BOP Accounting
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Example 1
Suppose an Australian resident wants to purchase something in Japan and thus needs Japanese currency to make the purchase.
The Australian currency sold is recorded as a credit entry in the financial account. Ownership changes from an Australian resident to a foreign resident.
The Japanese yen purchased is recorded as a debit entry on the financial account, valued at the current exchange value.
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Example 2
Assume that the Australian resident uses his yen to purchase a camera from a store in Japan and then brings it back to Australia
The item sold in this case is Japanese currency, reflecting a decrease in holdings of foreign exchange. This is recorded as a credit entry on the financial account.
The good imported into Australia is recorded as a debit entry on the current account.
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Example 3
Assume that the Australian resident uses his yen to purchase a Japanese government bond.
The transaction is recorded on the financial account as a debit entry representing the increase in domestic holdings of foreign bonds, and as a credit entry reflecting a decrease in holdings of foreign exchange.
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Example 4
Assume a Japanese resident who owns bonds issued by a Australian company receives interest payments.
The transaction is recorded on the current account as a debit entry representing the payment of income to a foreign resident,
and as a credit entry on the financial account reflecting an increase in Japanese financial claims against an Australian bank.
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Official Reserve Transactions
Official international reserves are foreign assets held by the central bank.
Governments/ central banks can influence exchange rates by buying and selling official reserves.
The buying and selling of official reserves is recorded in the “official transactions” account.
Consider the examples above. Private foreigners in Japan might not wish to retain all of these newly obtained $AUD balances.
If Japan is receiving more $AUD than it requires for the purchase of Australian assets and imports from Australia, then there is an excess supply of AUD dollars.
The price of the $AUD in terms of Yen will decline, and the exchange value of the Yen will increase.
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Official Reserve Transactions (– ΔIR)
If the Central Bank is adding to its stock of Official Reserves it is recorded in the Balance of Payments statistics as a debit. (Importing reserves)
(Similar to the treatment of a private citizen purchasing foreign assets, which is also recorded as a negative in the Financial Account of the Balance of Payments)
A reduction in the Central Bank’s Stock of Foreign Exchange assets is recorded as a credit in the Balance of Payments. (Exporting reserves)
Note: Under a pure floating or a flexible exchange rate the Central Bank does not buy or sell foreign exchange
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Capital Account ( KA)
A minor account of the Balance of Payments for many countries.
Covers:
Migrant transfers (goods and financial assets accompanying migrants as they enter or leave the country).
Debt forgiveness
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Summary on BOP – the BOP must always balance
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With no Central Bank intervention:
BOP = Current Account + Financial Account = 0
Current Account = – Financial Account = ∆NFA
If there is Central Bank intervention:
If ΔIR < 0 (the Central Bank is increasing its stock of foreign reserves), then CA + FA > 0.
(X – M + NI) – ΔNFA – ΔIR = 0
Current Account
Financial Account
Change in Net Foreign Assets
Change in Reserves
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Summary: The balance of payments will always balance
BOP = CA + FA + KA + ΔIR = 0
Typically the KA is relatively small and can be neglected.
With no Central Bank intervention:
BOP = CA +FA = 0
CA = -FA
If there is Central Bank intervention:
BOP = CA + FA + ΔIR = 0
If ΔIR < 0 (the Central Bank is increasing its stock of foreign exchange reserves), then CA + FA > 0.
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Note
The CA and FA measure the private and non Australian Government demand for Australian Dollars
BOP = CA+FA=0
If not in balance then it must be paid for by International reserve flows
BOP = CA+FA+ΔIR = 0
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Meaning of a CAD / CAS
A current account surplus (CAS) means exports of goods and services, investment income and transfers exceed imports and outflows.
A current account deficit (CAD) means imports of goods and services, and outflows are greater than exports and inflows; must be financed by borrowing (Financial account inflows).
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International Investment Position
International Investment Position (IIP) is another related balance sheet. It is a statement of the stocks of a nation’s international assets and foreign liabilities at a point in time, usually the end of a year.
Any capital flows (related to a current account imbalance) creates a change in the IIP.
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Level of foreign investment in Australia The level of foreign investment in Australia reached $3,844.5b at 31 December 2019, an increase of $278.9b (8%) on the previous year. Portfolio investment accounted for $1,996.4b (52%), direct investment for $1,019.5b (27%), other investment for $542.8b (14%) and financial derivatives for $285.8b (7%). Of the portfolio investment liabilities, debt securities accounted for $1,334.3b (35% of foreign investment in Australia) and equity securities for $662.1b (17% of foreign investment in Australia).
Level of Australian investment abroad
The level of Australian investment abroad reached $2,953.1b at 31 December 2019, an increase of $405.4b (16%) on the previous year. Portfolio investment accounted for $1,314.8b (45%), direct investment for $826.8b (28%), other investment for $450.7b (15%), financial derivatives for $275.1b (9%) and reserve assets for $85.7b (3%). Of the portfolio investment assets, equity securities accounted for $886.9b (30% of Australian investment abroad) and debt securities for $427.9b (14% of Australian investment abroad).
Australia's net IIP liability position at 31 December 2019 was $891.5b
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Financing a Current Account Deficit
The concept of current account balance is economically important in that it reflects changes in a country’s net foreign assets, international investment position, or a country’s net foreign wealth (W).
That is, the difference between foreign assets owned by Australian residents and Australian assets owned by foreigners (foreign liabilities).
NFA = Net Foreign Assets = Net Foreign Wealth = Net International Investment Position
= FA (Foreign Asset ) – FL (Foreign Liabilities)
Change in net foreign wealth (W) = current account balance = - financial account balance.
If the current account is in deficit the shortfall must be financed
A current account deficit corresponds to an exactly equal accumulation of net financial liabilities to the rest of the world.
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Financing a Current Account Deficit
Credit
Debit
Current account (CA)
Merchandise
Services
Factor income
Transfer
Financial Account (= – ΔNFA)
Foreign assets owned by domestic (FA)
Domestic assets owned by foreigners (FL)
Change in Official Reserves
(= – ΔIR)
Exports
Exports
Received
Received
Decrease
Increase
Decrease in R
Imports
Imports
Paid
Paid
Increase Decrease
Increase in R
Increase in Net Foreign Liabilities = Accumulate foreign debt
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Foreign Debt
Net foreign debt = Australian non-equity assets owned by foreigners - foreign non-equity owned by Australian residents. Overseas borrowing, by itself, does not add to net foreign debt.
There will be an increase in foreign holdings of domestic bonds, recorded as a credit entry on the financial account,
But,
an offsetting increase in the domestic holding of foreign currency, recorded as a debit entry on the financial account. There is therefore no net change in a country’s financial account and no net change in that country’s net foreign liabilities.
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Foreign Debt
Foreign loans are “counter balanced”, there are three possibilities:
1. purchases of foreign goods and services by domestic residents (including income payments)
2. purchases of claims on foreigners (purchasing foreign currency assets)
3. financing the acquisition of foreign reserves
Net foreign debt can only increase if borrowing is financing a current account deficit. Otherwise, borrowing from overseas will be increasing foreign claims on domestic assets but at the same time they will be increasing foreign currency assets.
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There are three ways in which the shortfall can be financed
1. The domestic economy can borrow from the rest of the world by issuing financial claims (liabilities) on itself which are financial assets for the rest of the world. This is recorded as a credit entry in the financial account. This results in a reduction in net foreign assets (increase in net foreign liabilities).
2. Rather than add to debt, the domestic economy can sell off its financial assets, both domestic and foreign, to the rest of the world. This would appear as a capital inflow and therefore as a credit entry in the financial account. This results in a reduction in net foreign assets (increase in net foreign liabilities).
The Central Bank can also finance the shortfall by running down its stocks of foreign exchange reserves which also results in a reduction in net foreign assets (increase in net foreign liabilities).
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China has steadily accumulated U.S. Treasury securities over the last few decades. As of December 2019, the Asian nation owns $1.07 trillion, or about 5%, of the $23 trillion U.S. national debt, which is more than any other foreign country
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Changes in net foreign wealth reconsidered
Link to world bank data on Net foreign assets
Change in net foreign wealth (W) = Current account balance + Capital gains on W
Valuation changes arising from asset price and exchange rate movements can cause net foreign wealth to diverge from the level implied by current account deficits.
Example: In the US, the period 2002-2007 exhibited the largest current account deficits since 1976. Nevertheless, US net foreign wealth improved. This discrepancy is due to increases in the market value of U.S.-owned foreign assets (most denominated in foreign currency ) relative to foreign-owned U.S. assets (mostly denominated in US dollars).
Reduction in the exchange value of the US dollar, increasing the US dollar value of foreign currency denominated US-owned assets, leave unchanged the US dollar value of US dollar denominated foreign owned assets.
Stock market in foreign countries outperformed the US stock market
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NATIONAL INCOME ACCOUNTING AND THE OPEN ECONOMY
Open – Economy Macroeconomics Identities
In an open economy, domestic residents can trade both goods and services as well as financial assets with the rest of the world.
Total spending on domestic goods is given by:
GDP = (C + I + G) + (X – IM)
GNP = GDP + NI
where NI is net international income
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NATIONAL INCOME ACCOUNTING AND THE OPEN ECONOMY
The relationships among the various components of GDP are described in the national income accounts.
Closed Economy Macroeconomics Identities
GDP = C + I + G
I = GDP – C - G
Define gross domestic savings as
S = GDP – C – G (where S is the sum of private sector savings and government sector savings).
The basic national income accounting identity implies the familiar closed-economy identity:
S = I
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NATIONAL INCOME ACCOUNTING AND THE OPEN ECONOMY
Open – Economy Macroeconomics Identities
Using the basic national income accounting identity and adding net investment income to both sides we have:
GNP = (C + I + G) + (NX + NI)
Therefore:
GNP = (C + I + G) + CA
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NATIONAL INCOME ACCOUNTING AND THE OPEN ECONOMY
Open – Economy Macroeconomics Identities
GNP = (C+I+G)+CA
In an open economy, our definition of saving must also be modified to:
S = GNP – C – G
S = C+I+G+CA – C- G
We can therefore derive the following identity:
S = I + CA
alternatively
I = S - CA
alternatively
S - I = CA (note that if NI = 0, S – I = NX)
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NATIONAL INCOME ACCOUNTING AND THE OPEN ECONOMY
Open – Economy Macroeconomics Identities
Insights:
While a closed economy can only allocate savings to the purchase of real (nonfinancial) capital, an open economy can also allocate savings to the acquisition of financial claims on the rest of the world. S=I+CA
While a closed economy must finance investment by saving, an open economy can do so either by saving or reducing its net foreign wealth (borrowing abroad). I=S-CA
The current account balance is the difference between savings and investment. S-I=CA
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NATIONAL INCOME ACCOUNTING AND THE OPEN ECONOMY
If S >I
Current Account Surplus
Net Foreign Wealth Increasing
Financial Account Deficit
Lending savings to the Rest of the World
If S <I
Current Account Deficit
Net Foreign Wealth Decreasing
Financial Account Surplus
Borrowing savings from the Rest of the World
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Is a Current account deficit bad
A trade deficit is not necessarily a bad thing (e.g. when growing domestic industries attract foreign investments)
if borrowing is financing investment (which generates economic growth and income in future) then it is not a problem
However, if a country persistently runs a trade deficit this is something to worry about (e.g. vulnerability to loss of foreign investors’ confidence)
excessive borrowing on capital account to finance consumption on current account will incur higher interest payments and eventually lead to reduction consumption
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On running a CA deficit, Is it a bad?
Countries frequently run large bilateral trade deficits. Sometimes you will hear commentators providing the following incorrect explanation.
“China protects its markets from US goods while the US allows China to sell freely into the US. This means US exports to China are small while its imports from China are big. That’s why we have a trade deficit.”
This is wrong for several reasons. First, countries typically exhibit “ circular comparative advantage”, meaning that the US buys from China, China buys from Japan, Japan buys from US. All have a trade deficit with one partner and a trade surplus with another. This is not caused by protection, but by the fact that countries produce and demand different sets of goods.
To use a simpler example, I have an enormous trade deficit with Taco Bell (and McDonalds, and about every other fast food restaurant in town). I “import” low quality food from them, but they have never once bought an economics lecture from me. Is that because Taco Bell is protecting its market? No. It just doesn’t need economics lectures. Happily, I can sell my lectures to undergrads, who then sell their labor to Taco Bell, which sells me greasy tacos of mediocre quality – circular comparative advantage.
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On running a CA deficit, Is it a bad? Cont’
Trade deficits indicate only that a country currently saves less than it invests.
Far from indicating a lack of competitiveness, trade balances may be caused precisely because a country is expecting a surge in productivity in the near future,and investing to take advantage.
That does not mean that trade deficits are necessarily good. Its possible that a country may be saving too little (or investing too much) for some reason, and this would lead to a trade deficit. But analyzing this point requires addressing the savings (or investment) behavior directly.
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Net Foreign Wealth - Australia
It reflects difference between foreign assets owned by Australian residents and Australian assets owned by foreigners
The value of Australia’s foreign assets and foreign liabilities have both been on an increase since late 1980s
Foreign assets have consistently been below foreign liabilities and the difference has been tracking upwards
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Δ in Net Foreign Wealth (ΔW) = current account balance = - financial account balance.
Net Foreign Wealth = Foreign Asset – Foreign Liabilities
Source: Feenstra and Taylor (2017) International Economics, Worth Publishers
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Summary: National Income Account
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If Sn > I CA > 0 ∆NFA > 0
Balance of Trade Surplus EX>IM
Current Account Surplus
Net Foreign Asset (Net Foreign Wealth) Increasing
Financial Account Deficit
Capital Outflow
Lending Surplus savings to the Rest of the World
If Sn < I CA < 0 ∆NFA < 0
Balance of Trade Deficit EX<IM
Current Account Deficit
Net Foreign Debt Increasing
Financial Account Surplus
Capital Inflow
Borrowing savings from the Rest of the World
National “Life Cycles”
Nations also have life cycles caused by demographics and productivity surges. The age distribution of a population can differ substantially across populations. Compare Japan and China.
Currently, Japan’s population is “middle-aged”, meaning a disproportionate share of the population is in their peak working years. This necessarily means that in 20 years, that population will be retirement age, and Japan will be dis-saving (spending more than it saves) in order to pay for that retirement. China’s population, in contrast, is very young. In 20 years, it will have a very large working age population.
Productivity change can also induce cycles. The most obvious example is the case of post-war economies like Japan and Germany that had to consume more than they produced during a period in which domestic investment exceeded domestic savings.
But this kind of a thing can happen in any economy that is expecting a future productivity surge. If productivity will be greater in the future (due to positive technological change), I want to invest heavily now to take advantage of that. This may help explain extremely high investment rates relative to saving in the US in the last 20 years – an effort to capture the returns to computer-related productivity increases.
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RMIT Classification: Trusted
Source: Feenstra and Taylor (2017) International Economics, Worth Publishers
66
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RMIT Classification: Trusted
67
-30000-25000-20000-15000-10000-5000050001000015000200002500030000$ MillionsSource: ABSFinancial AccountCurrent Account
Australia foreign financial position
0
500000
1000000
1500000
2000000
2500000
19891991199319951997199920012003200520072009
Assets Value in million $
Australian assets abroadForeign assets in Australia
Chart1
| 32660 | 252518 |
| 33025 | 284539 |
| 33390 | 304439 |
| 33756 | 332743 |
| 34121 | 367441 |
| 34486 | 406175 |
| 34851 | 441787 |
| 35217 | 470413 |
| 35582 | 521835 |
| 35947 | 598574 |
| 36312 | 649187 |
| 36678 | 757486 |
| 37043 | 856521 |
| 37408 | 886768 |
| 37773 | 949122 |
| 38139 | 1095712 |
| 38504 | 1162686 |
| 38869 | 1385309 |
| 39234 | 1663001 |
| 39600 | 1741115 |
| 39965 | 1792394 |
| 40330 | 1960826 |
Sheet1
| FOREIGN LIABILITIES ; | Position at end of period ; FOREIGN ASSETS ; | ||
| Unit | $ Millions | $ Millions | |
| Series Type | Original | Original | |
| Data Type | STOCK_CLOSE | STOCK_CLOSE | |
| Frequency | Annual | Annual | |
| Collection Month | 6 | 6 | |
| Series Start | Jun-1989 | Jun-1989 | |
| Series End | Jun-2010 | Jun-2010 | |
| No. Obs | 22 | 22 | |
| Series ID | A3529203L | A3533203R | |
| Jun-1989 | 252518 | -102532 | 102532 |
| Jun-1990 | 284539 | -111704 | 111704 |
| Jun-1991 | 304439 | -113163 | 113163 |
| Jun-1992 | 332743 | -126987 | 126987 |
| Jun-1993 | 367441 | -147223 | 147223 |
| Jun-1994 | 406175 | -170947 | 170947 |
| Jun-1995 | 441787 | -187395 | 187395 |
| Jun-1996 | 470413 | -196505 | 196505 |
| Jun-1997 | 521835 | -233206 | 233206 |
| Jun-1998 | 598574 | -303990 | 303990 |
| Jun-1999 | 649187 | -330120 | 330120 |
| Jun-2000 | 757486 | -431352 | 431352 |
| Jun-2001 | 856521 | -493775 | 493775 |
| Jun-2002 | 886768 | -524512 | 524512 |
| Jun-2003 | 949122 | -537242 | 537242 |
| Jun-2004 | 1095712 | -648424 | 648424 |
| Jun-2005 | 1162686 | -665169 | 665169 |
| Jun-2006 | 1385309 | -856627 | 856627 |
| Jun-2007 | 1663001 | -1049815 | 1049815 |
| Jun-2008 | 1741115 | -1082555 | 1082555 |
| Jun-2009 | 1792394 | -1088727 | 1088727 |
| Jun-2010 | 1960826 | -1193734 | 1193734 |
