Introduction to the Course

DETERMINANTS OF ECONOMIC HEALTH

EXOGENOUS FACTORS INSTRINSIC FACTORS

ECONOMY

ECONOMIC POLICIES

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Development courses. Any reuse requires the permission of the IMF. The views expressed in this material are those of the
course staff and do not necessarily represent those of the IMF or IMF policy. 1
 POLICIES

The use of government

Fiscal Policy revenues and expenditures to
i fl
influence th
the economy

Monetary & What the central bank does to

Exchange Rate influence money, credit,
Policies interest and exchange rates

The design of regulations and

Structural
institutions to affect how the
Policies
economy works

POLICIES AND STABILITY

Future
Exogenous Exogenous
shock shock
State of the economyy

Policy
Change

Other Same
Policies
factors Policies

Time

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MACROECONOMIC STABILITY

Internal balance External balance

Output is at full The current account can
employment and inflation be financed in an orderly
is low and stable manner

Too much or too little demand

Uncertainty
Inflation and exchange rate
Assets price bubble

INSTABILITY AND CRISIS

Internal
te a balance
ba a ce CRISIS External balance

Production falls
Unemployment increases
B k fail
Banks f il
Assets lose their value

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 BASIS OF FPP

Financial p
programming
g g is the design
g of a set of
macroeconomic policies aimed at achieving desired
macroeconomic objectives

Accounts for the main sectors of the economyy

SECTORS

All agents that perform similar economic functions

Government
Real Sector: Sector External Sector:
producing units the rest of the
Monetary world
within an economy
Sector:
b k
banks

transactions with other sectors

assets and liabilities to other sectors

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 ACCOUNTS

External Sector Accounts

National Income and
Transactions, claims and
Product Accounts
liabilities of an economy
Production and use of
with/to the rest of the
goods and services
world

Government Accounts
Revenue, expenditures, Monetary Accounts
a c g, assets, and
financing, a d Assets and liabilities of
liabilities of the deposit taking institutions
government

Other selected indicators

LINKS BETWEEN SECTORS

National
Real Sector
Income & Prod.
Accounts

Government
Government ExternalSector
External Sector
Sector
Accounts Accounts

Monetary
Monetary
Sector
Accounts

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 ACCOUNTING IDENTITIES

Flows or positions involving

agents in one sector and agents in other sector
agents of a sub-sector and the broader sector
should be reflected equally in the respective accounts

The sum of certain aggregates should be the same as the sum

of other aggregates, by construction

Examples:
Monetary and the government accounts should report the same
amount of bank lending to the government
The supply of goods and services must be equal to the effective
demand for goods and services

BEHAVIORAL RELATIONSHIPS

Behavioral relations link the development of variables of

different accounts in an economic meaningful way

Examples:
An increase in credit to the private sector may affect
consumption and/or investment
An increase in taxes and reduction in government
expenditures may affect consumption, production, and
imports

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 WHY ONLY 4 ACCOUNTS

The set of real, external, government, and monetary sector

accounts
t iis:
Comprehensive (and captures fiscal and monetary policy)
Generally available
Periodic
Timelyy
Accurate

COMMON CONCEPTS

Sectors

Residence

Stock, flows, and transactions

Cash and accrual accounting

Consolidation of accounts

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 RESIDENCE

Residence is based on center of predominant

economic interest (not on citizenship)

Households and individuals who live in an

economy for a year or longer
Enterprises that produce in the economy
The government
Non-profit organizations

STOCK, FLOWS,
AND TRANSACTIONS

Flows
Changes in stocks during
Stocks a period of time
The level at a point
in time of the
Transactions
holdings of assets
and/or liabilities

Other flows

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 STOCK, FLOWS,
AND TRANSACTIONS

Other changes

Transactions

Stock1
Flow
Stock0

CASH AND ACCRUAL

ACCOUNTING

Cash accounting
Transactions are attributed to the period when
payment is made

Accrual accounting
Transactions are attributed to the period when they
take place, irrespective of when payment is made

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 CONSOLIDATION OF
ACCOUNTIS

Eliminates all transactions and debtor-creditor

relationships between units within the same sector.

Allows isolating the transactions and debtor-

creditor relationships between a sector as a whole
and other sectors.

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