fpp1x_--_slides_introduction_to_fpp.pdf

8/12/2019 FPP1x_--_Slides_Introduction_to_FPP.pdf

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This training material is the property of the International Monetary Fund and is intended for use in IMF Institute for Capacity

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.

Introduction to the Course

DETERMINANTS OF ECONOMIC HEALTHDETERMINANTS OF ECONOMIC HEALTH

EXOGENOUS FACTORS INSTRINSIC FACTORS

ECONOMY

ECONOMIC POLICIES


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Fiscal PolicyFiscal Policy

POLICIESPOLICIES

The use of governmentrevenues and expenditures to

n uence t e economy

Monetary &

Exchange Rate

Policies

Monetary &

Exchange Rate

Policies

What the central bank does to

influence money, credit,

interest and exchange rates

StructuralPolicies

StructuralPolicies

The design of regulations and

institutions to affect how the

economy works

POLICIES AND STABILITYPOLICIES AND STABILITY

Exogenous

Future

Exogenous

oftheeconomy

Policy

Change

Time

State

PoliciesOther

factors

Same

Policies


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Internal balanceInternal balance

MACROECONOMIC STABILITYMACROECONOMIC STABILITY

External balanceExternal balance

u pu s a u

employment and inflation

is low and stable

u pu s a u

employment and inflation

is low and stable

be financed in an orderly

manner

be financed in an orderly

manner

Too much or too little demand

Uncertainty

Inflation and exchange rate

Assets price bubble

Internal balanceInternal balance

INSTABILITY AND CRISISINSTABILITY AND CRISIS

External balanceExternal balanceCRISISCRISIS

Production falls

Unemployment increases

an s a Assets lose their value


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BASIS OF FPPBASIS OF FPP

Financial ro rammin is the desi n of a set ofFinancial ro rammin is the desi n of a set of

macroeconomic policies aimed at achieving desired

macroeconomic objectives

macroeconomic policies aimed at achieving desired

macroeconomic objectives

Accounts for the main sectors of the economyAccounts for the main sectors of the economy

All agents that perform similar economic functionsAll agents that perform similar economic functions

SECTORSSECTORS

Real Sector:

producing units

within an economy

Real Sector:

producing units

within an economy

External Sector:

the rest of the

world

External Sector:

the rest of the

world

Government

Sector

Government

Sector

Monetary

Sector:

Monetary

Sector:

an san s

transactions with other sectors

assets and liabilities to other sectors


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ACCOUNTSACCOUNTS

National Income andProduct Accounts

External Sector AccountsTransactions, claims and

liabilities of an economy

goods and serviceswith/to the rest of the

world

Government Accounts

Revenue, expenditures,

financin assets and

Monetary Accounts

liabilities of the

government

deposit taking institutions

Other selected indicators

LINKS BETWEEN SECTORSLINKS BETWEEN SECTORS

Real SectorReal SectorNational

Income & Prod.

National

Income & Prod.

External SectorExternal SectorGovernment

Sector

Government

Sector

AccountsAccounts

External Sector

Accounts

External Sector

Accounts

Government

Accounts

Government

Accounts

Monetary

Sector

Monetary

SectorMonetary

Accounts

Monetary

Accounts


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ACCOUNTING IDENTITIESACCOUNTING IDENTITIES

Flows or positions involving

agents in one sector and agents in other sector

agents of a sub-sector and the broader sector

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 accountsshould be reflected equally in the respective accounts

Exam les:

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

of other aggregates, by construction

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

of other aggregates, by construction

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 RELATIONSHIPSBEHAVIORAL RELATIONSHIPS

Behavioral relations link the development of variables ofBehavioral relations link the development of variables of

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 ACCOUNTSWHY ONLY 4 ACCOUNTS

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

accounts s:

Comprehensive (and captures fiscal and monetary policy)

Generally available

Periodic

Timely

Accurate

COMMON CONCEPTSCOMMON CONCEPTS

Residence

Stock, flows, and transactions

Consolidation of accounts


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Residence is based on center of predominant

economic interest (not on citizenship)

Residence is based on center of predominant

economic interest (not on citizenship)

RESIDENCERESIDENCE

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

STOCK, FLOWS,

AND TRANSACTIONS

FlowsFlows

Stocks

The level at a point

in time of the

holdings of assets

Stocks

The level at a point

in time of the

holdings of assets

a period of time

a period of time

TransactionsTransactions

Other flowsOther flows


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STOCK, FLOWS,

AND TRANSACTIONS

STOCK, FLOWS,

AND TRANSACTIONS

Other changes

Stock1Flow

Transactions

Stock0

CASH AND ACCRUAL

ACCOUNTING

CASH AND ACCRUAL

ACCOUNTING

Cash accountingCash accounting

Transactions are attributed to the period when

payment is made

Transactions are attributed to the period when

payment is made

Accrual accountinAccrual accountin

Transactions are attributed to the period when they

take place, irrespective of when payment is made

Transactions are attributed to the period when they

take place, irrespective of when payment is made


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CONSOLIDATION OF

ACCOUNTIS

CONSOLIDATION OF

ACCOUNTIS

Eliminates all transactions and debtor-creditorEliminates all transactions and debtor-creditor

relationships between units within the same sector.relationships between units within the same sector.

Allows isolating the transactions and debtor-Allows isolating the transactions and debtor-

creditor relationships between a sector as a whole

and other sectors.

creditor relationships between a sector as a whole

and other sectors.

fpp1x_--_slides_introduction_to_fpp.pdf

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