Abstract
In this chapter we illustrate some important accounting relations among the main macroeconomic (real and financial) aggregates in an open economy in order to fit the balance of payments into the context of the whole economic system. The reason for giving this treatment in an international economics textbook is not that we are particularly fond of accounting, but that the accounting framework that we propose will render us invaluable services in the course of the examination of the adjustment processes of the balance of payments.
This is a preview of subscription content, log in via an institution to check access.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Notes
- 1.
We are using the term Current Account Balance in a sense slightly different from the Fund’s definition previously illustrated, since we exclude net unilateral transfers of financial assets. This difference is, however, negligible.
- 2.
One might relax this assumption slightly with no change in the results by hypothesizing that any domestic securities issued by other sectors are held solely by the issuing sector, so that they cancel out within the sector.
- 3.
It should be noted that the balance of payments does not conform exactly with the rest-of-the-world account in SNA (the United Nation’s System of National Accounts, which forms the basis of national economic accounting in most countries). For our purposes, however, we can ignore these differences, as they are of secondary importance with respect to the fact that the agreement on underlying principles makes the balance of payments consistent with the overall framework of SNA. For a detailed comparison of balance-of-payments classification with external transactions in SNA, see IMF, 2009, Balance of Payments Manual, 6th edition.
- 4.
For simplicity’s sake, we have neglected unilateral transfers of financial assets, which however could be included in the capital account.
Author information
Authors and Affiliations
Rights and permissions
Copyright information
© 2016 Springer-Verlag Berlin Heidelberg
About this chapter
Cite this chapter
Gandolfo, G. (2016). Real and Financial Flows in an Open Economy. In: International Finance and Open-Economy Macroeconomics. Springer Texts in Business and Economics. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-662-49862-0_6
Download citation
DOI: https://doi.org/10.1007/978-3-662-49862-0_6
Published:
Publisher Name: Springer, Berlin, Heidelberg
Print ISBN: 978-3-662-49860-6
Online ISBN: 978-3-662-49862-0
eBook Packages: Economics and FinanceEconomics and Finance (R0)