The Balance of Payments
The Balance of Payments
Costas Arkolakis teaching assistant: Yijia Lu
Economics 407, Yale
January 2011
Motivation: International Economics
Study large-scale economic problems in inderdependent countries Dependence through trade and capital ows International Finance mostly interested in the second whereas international trade in the ...rst
This class will study important large-scale economic problems Focus on capital ows, but need to be understood in conjuction with trade ows Today, setting up the proper language: National Income Accounts
Balance of Payments Accounting
Balance of Payment: records a country's international transactions Current Account Financial Account Capital Account
Balance of Payments
Balance of Payment Current Account Balance+Financial Account Balance+Capital Account Balance=0
Fundamental balance of payments identity An implication of the double-entry book-keeping methodology Example of double-entry methodology: An export transaction is recorded in 2 countries (once with plus ?export? and once with a minus ?import?)
Balance of Payments Accounting
Balance of Payment: records a country's international transactions Current Account: trade balance and income from abroad
(Exports-Imports+International income receipts-payments to foreigners) (e.g. Japanese TV imported) Financial Account: sales of assets Sales of assets to foreigners-purchases of assets located abroad (e.g. purchasing a residence abroad) Capital Account: capital transfers (e.g. charity gifts)
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