Econ 502 Ch 5 Notes

Econ 502 Ch 5 Notes - International Macroeconomics National...

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International Macroeconomics National Economies Trade Goods, Services National Economies Borrow and Lend International Transactions Accounting Sales to Foreigners generate Payments Purchases from Foreigners require Payments Current Account Items Goods, Services: Imports and Exports Income Receipts and Payments Net Unilateral Transfers Capital Account Transactions Financial Flows U.S. Purchases of Foreign Assets Foreigners Purchases of U.S. Assets Statistical Discrepancy
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Capital Outflows - International Lending We pay to buy Foreign Assets. KFA Deficit CA Surplus needed to pay for Assets. Capital Inflows - International Borrowing We receive Payment for Assets sold. KFA Surplus Payments received finance CA Deficit. Overall Balance: KFA + CA = 0 Savings and Investment in Open Economies (Ignoring Net Unilateral Transfers and Net Factor Payments) National Savings: G C Y S - - = National Income Identity: NX G I C Y + + + = Uses of National Savings: CA I NX I S + = + = Uses of Private Savings CA I ) S ( S . govt . pvt + + - =
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Equilibrium in Open Economies Equilibrium Condition: CA I S or NX I S d d d d + = + = The Small Open Economy World Real Interest Rate: w r World Savings = World Investment Small Country: Fixed Real Interest Rate ) r ( I ) r ( S CA NX w d w d - = =
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d S d S d I d I r r w r w r I , S I , S S S I I CA KFA Net Exporter Lender CA>0 Net Importer Borrower KFA>0 Country A Country B
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Effects of Disturbances: Initial Position I S d I d S r w r CA Deficit Country I S d I d S r w r CA Surplus Country
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Effects of Disturbances: A Temporary Supply Shock - A I S d I d S r w r CA Deficit Country I S d I d S r w r CA Surplus Country
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Effects of Disturbances: MPK f I S d I d S r w r CA Deficit Country I S d I d S r w r CA Surplus Country
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Effects of Disturbances: r w I S d I d S r w r CA Deficit Country I S d I d S r w r CA Surplus Country
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Savings, Investment in Large, Open Economies Small Country: Cannot Affect r w Large Country: May Affect r w A Two Country World Domestic Country (U.S.) Rest of the World (R.O.W.) Closed World Economy 0 0 = + = + ROW US ROW US KFA KFA CA CA By Definition: US US KFA CA - = Therefore: ROW US CA KFA =
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r r w r w r U.S. R.O.W. US
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This note was uploaded on 05/19/2008 for the course ECON 502 taught by Professor Mccafferty during the Spring '08 term at Ohio State.

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Econ 502 Ch 5 Notes - International Macroeconomics National...

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