National Accounts

National Accounts

Jakub Boraty´nski

Institute of Econometrics University of L´od´z jakub.boratynski@uni.lodz.pl

Room F225

Course details

ˆ Contents

ˆ Selection of basic and advanced topics

ˆ Practical exercises

ˆ Textbook: F.Lequiller, D.Blades Understanding National Accounts (UNA),

https://www.oecd.org/std/UNA-2014.pdf

ˆ Assessment criteria

ˆ Necessary condition 1: attendance minimum 60%

ˆ Necessary condition 2: 10 minute presentation of exercise solution

ˆ Written exam during last lecture

What are national accounts? (1)

“National accounts are a coherent, consistent and integrated set of macroeconomic accounts, balance sheets and tables based on a set of internationally agreed concepts, definitions, classifications and accounting rules.”

“National accounts provide a comprehensive accounting framework within which economic data can be compiled and presented in a format that is designed for purposes of economic analysis, decision-taking and policy-making.”

Source: OECD Glossary of Statistical Terms

What are national accounts? (2)

“National accounts, often called macroeconomic accounts, are statistics focusing on the structure and evolution of economies.

They provide a framework for numerically describing and analysing, in an accessible and reliable way, the almost unimaginably large number of economic interactions within an economy.”

Source: Eurostat, Statistics Explained

Quick history and standards

ˆ Concepts of national accounts emerged from 1930s, along with advances in macroeconomic theory and notions

ˆ Modern structure of national accounts developed in the 1950s (Richard Stone and collaborators)

ˆ Intergovernmental organizations (UN, OECD etc.) coordinating international standards

ˆ System of National Accounts 2008 (SNA 2008)

ˆ International reference manual signed by UN, OECD, IMF, World Bank, European Commission

ˆ In Europe, based on EU legislation, national accounts follow European System of National and Regional Accounts (ESA 2010)

ˆ Fully compatible with SNA 2008, but includes additional useful detail

Lecture 1 contents

Essential macroeconomic aggregates

ˆ Topics from UNA Chapter 1

ˆ Essential macroeconomic aggregates inlc. GDP

ˆ Fundamental relationships

ˆ Decomposition of GDP growth

GDP

ˆ Gross Domestic Product (GDP) – perhaps most widely used indicator in national accounts

ˆ “GDP combines in a single figure, and with no double counting, all the output (or production) carried out by all the firms, non-profit, institutions, government bodies and

households in a given country”

Output at firm level

Output = Intermediate consumption + Value added

Adding up values added

ˆ GDP =P Values Added

ˆ More precisely: GDP =

P Gross Values Added + Taxes minus subsidies on products

ˆ Adding up values added rather than outputs (by firms) avoids double counting

ˆ GDP =P Outputs − P Intermediate Consumptions

Example

ˆ Taxi ride: 30 z l, incl. fuel cost 10 z l

ˆ Fuel production 10 z l, incl. crude oil cost 6 z l

ˆ GDP=?

Three fundamental equations

ˆ Deriving GDP in volume

ˆ Reconciling global output and demand

ˆ Reconciling global output and income

Separating quantity and price changes

ˆ Economists mostly interested in changes of “real” GDP

ˆ Change in “nominal” GDP (GDP “in value”, or “in current prices”) split into:

1. indicator of change in quantity (“real GDP”, or “GDP in volume”)

2. indicator of change in prices (“GDP deflator”)

Fundamental equation 1

[1 + the growth rate (divided by 100) of GDP at current prices] = [1 + the growth rate (divided by 100) of GDP in volume]×

[1 + the growth rate (divided by 100) of the GDP deflator]

[1 + the growth rate (divided by 100) of GDP in volume] = [1 + the growth rate (divided by 100) of GDP at current prices]/

[1 + the growth rate (divided by 100) of the GDP deflator]

Example

ˆ Nominal GDP growth 8%

ˆ Price growth 3%

ˆ Real GDP growth=?

Final demand

ˆ Final consumption expenditure

ˆ Household consumption

ˆ Government consumption

ˆ Consumption by non-profit institutions serving households (NPISH)

ˆ Gross capital formation (GCF)

ˆ Gross fixed capital formation (GFCF)

ˆ Changes in inventories

ˆ Exports

Fundamental equation 2

GDP + Imports = Final consumption + GCF + Exports GDP = Final consumption + GCF + Net exports

Contributions to GDP growth

∆GDPt

GDPt−1

= ∆FCt

GDPt−1

+ ∆GCFt

GDPt−1

+ ∆NEt

GDPt−1

where ∆GDPt ≡ GDP_t− GDP_t−1 etc.

Example

ˆ Year 1: FC=60, GCF=30, NE=10

ˆ Year 2: FC=70, GCF=25, NE=12

ˆ Assume no changes in prices, i.e. growth of GDP in volume equals growth of GDP in current prices

ˆ Write down decomposition of the GDP growth

Fundamental equation 3

Output (sum of the values added) = Income (employees’ salaries + company profits) = Final demand (Consumption + GCF + Net exports)

Exercises for chapter 1

ˆ Exercise 3: calculation of GDP in volume

ˆ Exercise 4: calculation of contributions to growth

ˆ Exercise 6: explaining different terms and synonyms