Professional Documents
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Module 9
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Any reuse requires the permission of the IMF and ICD.
Opportunities and Risks of Globalization
Adverse shocks
Topic Linkages
From Net Exports to the Current Account
NX = X - IM
From Net Exports to the Current Account
NX CA
NOT
Comprehensive Comprehensive
CA = NX + Primary
Primary and SecondaryIncome
+ Secondary Income
GNDI º Y + Primary
Primaryand
+ Secondary
SecondaryIncome
Income
Savings-Investment Perspective
NX = Y - C - I -
14 2 43 G
Domestic absorption
Savings-Investment Perspective
CA = GNDI - C - I - G
Savings-Investment Perspective
S = GNDI - C - G (cons )
CA = S - I
Residual measure of savings:
S{ = CA
{ + {I
Residual BoP National
Measure Accounts
Savings-Investment Perspective
CA < 0
Investment funded by saving from
rest of the world.
CA > 0
Investment in ROW funded by our
saving.
Savings-Investment Perspective
High Savings
Low confidence; uncertainty; pension systems doubts
Low Investment
Political uncertainty; structural impediments
Thailand: Current Account/GDP Thailand: Savings and
(in percent ) Investment/GDP (in percent)
45.0%
20.0%
40.0%
Savings
15.0%
Investment
10.0% 35.0%
5.0%
30.0%
0.0%
-5.0% 25.0%
-10.0% 20.0%
CA = S - I
CA = S - I + S - IP P G G
CA = S - I P P
+ OB
{
Overall Balance
from Fiscal
Twin Deficits – Fiscal and External
Twin Deficits – Fiscal and External
Current Account
4.0%
Gov't Overall Balance
2.0%
0.0%
-2.0%
-4.0%
-6.0%
-8.0%
Q1.2005 Q1.2006 Q1.2007 Q1.2008 Q1.2009 Q1.2010 Q1.2011 Q1.2012 Q1.2013 Q1.2014 Q1.2015 Q1.2016
Warning Signs:
X = P *VOL( X )
$ $
X
IM = P VOL( IM )
$ $
IM
PX$
$
= External Terms of Trade (TOT)
PIM
Terms of Trade by region
(index, 2010=100)
130
120
110
100
90
80
60
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Domestic Price
Et Pt Level
Qt = *
Nominal Exchange
Rate in units of FC
per unit of LC
Pt Foreign Price
Level
qt = et + pt - pt*
The Real Exchange Rate (RER)
CA = NX ( RER) + Primary
Primaryand SecondaryIncome
+ Secondary Income
110
Real exchange rate index
105
(app +, base=100)
100
95
90
-4.0% -3.0% -2.0% -1.0% 0.0% 1.0% 2.0%
110
CA
D( ) = -h * %DRER
Real exchange rate index
105 Y
(app +, base=100)
100
95
90
-4.0% -3.0% -2.0% -1.0% 0.0% 1.0% 2.0%
General principle:
Flow balance (receipts – outlay) and financing must correspond
one-to-one.
CA = FA
The External Financial Account
Portfolio
Equity Shares
Marketable Debt
Other
Loans
Derivatives