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TOPIC 1: GLOBAL IMBALANCES Mes ares THE BALANCE OF PAYMENTS af cA = FA Tha Current Account FE pods and en A mere Trade balan = goods balance 4 senica balance 2 netincene prom ret incor? = X - IM 2 ccipiecu ey, &rom I0rour int) f dvkaandssiRieere ) Income balan = Net investment Wcome + net intematonal POLYMOND te ernplageor Net UNL TAL tYANs2rs = privale remittances + gov’ transpen see : a Cure nt ACCOUNt = Trade balance + income balance + Net uniaterat eransyen CAPA « CAMY2 O if CA <0 = nee exteinai dabt of country # Ip CA PO + net external cebt $ Financial. Account rae CLO Financial account = SUAS Of asseh to GORGE ~ purchare of asset grom abroad NET INTERNATIONAL INVESTMENT POSITION (NIIP) , NIPean change NuP = US owned foreign anets - Foreign Owned US aiets {O Oe supa or = Assets ~ Gabilites SONAR ip NIP is negative (£0) =) debtor courctry ip NIP is posite (>05 =? creditor country Caaibae caters changes in manic | [Awue = CA + valuaon changos] ASe9 cur Gy stock mashet Wabiuby postions THE NEGATIVE NIIP POSITIVE NIL PARADOX in the US, NIIP ZO, but Nil >0 f° Curent alcounp Two possibe expranatons : Rypotretica | = NilPion + CA NUPaoiq © Park matter - unrecorded ys foreign direct iavestmant (e.g. i . 5 . tua NIP tangible human capital) St recorded TNiIPE = NilP, + Dark matter | bask masdige = TNIIP ~ RiP ] Nit = r ) INR EOE On [ x TNiP D net fORign aned ® Retun diperensat - 201G US eorns hughar inderese on risky FOre GN Asrecs than foreignen own on their SAfLr Low-rebern us asrets poids . Ings beROIe of the diperent types of financial insbumenti (poreign socks vs. T-bills) “Nil = yA A - cL D JUSE OL SMALL interasé rode KiMCEN SAL (e.g. 1-O¥7) eeunon neon FAUT ON LLbiUDes [ Can wack to a posite Nil even though NU is ~ hegative oo. Trees) is interest fate diperendal betueen aie and viahilites 
