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63rd SPC and 93rd DGINS Conference 19–21 September 2007 Budapest, Hungary. Globalisation and economic statistics : a „ multifunctional ” user’s perspective. Gábor Oblath National Bank of Hungary Monetary Council.
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63rd SPC and 93rd DGINS Conference 19–21 September 2007 Budapest, Hungary Globalisation and economic statistics:a „multifunctional” user’s perspective Gábor Oblath National Bank of Hungary Monetary Council
Why a „multifunctional” user’ view –personal background and motivations of the topics to be discussed • Relationship with economic statistics/statisticians • Applied macroeconomic research and analysis: • Former: short and longer-run macroeconomic analysis and projection • Technical cooperation with the Hungarian CSO (Consistency of NA – in particular, data on external trade) • Macroeconomic research (e.g. real convergence) • Monetary policy: decisions crucially depend on the understanding and careful interpretation of macroeconomic statistics (e.g. change in GDP – output-gap; BOP-data – risk premium) – importance of expectations • Education: applied macroeconomic analysis – in particular, handling and interpreting macro-data • economists must understand the logic („architecture”) of macro-statistics; • search for developments behind headline indicators; • even if dissatisfied with official statistics, economists should never try to „invent” statistics (counter-example: „dark matter”) • Member (former chair) of the Economic Section of the Hungarian Statistical Society • sympathize with statisticians: • recognise difficulties stemming from the conflicting trends of globalisation
Outline • Conflicting trends within globalisation: implications for economic statistics • Two macroeconomic-statistical issues related to globalisation Measuring, interpreting and comparing • „real income” of nations (real convergence) • the relative size of external imbalances • need for caution in reading the headline figures; but • no need to invent alternative BOP-statistics – a critique of the notion of a „dark matter” in the current account of nations • Conclusion: need for closer cooperation between statisticians and economists
I. Globalisation and economic statistics: contrasting trends • Globalisation: increasing openness – intensified interaction and interdependence among (economic units of) nations. Implications: • On the one hand: the boundaries between the „home” vs. „external” economy (ROW) are fading • multinational companies, • migration, • trade in services (innovations), • off-shore companies etc., etc. • „residents”/”non-residents”? • On the other hand: increasing importance of international • transactions („real” and financial flows) • assets (equity and debt stocks) on the home (national) economy
Implications for statistics • Decreasing importance of national borders from a microeconomic point of view • the perspective of economic agents (household and corporate sector) – suppliers of elementary data • moreover: incentives to obscure legal borders (e.g. tax „optimisation”) • Increasing importance of cross-border transactions from a macroeconomic perspective • government policy • international organisations • economic analysts • investors Users of macro-statistics
Problems for „producers” of statistics Economic statisticians under double pressure: • increasing difficulties involved in collecting, while • increasing importance of providing accurate/comparable data on cross-border • transactions • assets/liabilities
Globalisation: problems with users of statistics • In a globalised world-economy, analysts and market participants • interpret national developments in international comparison • categorise/group and assess countries according to very few and verysimple (headline) indicators („big picture”) • Implication for statisticians: importance of • conceptual and statistical accuracy • common international standards: comparability of national data • Implication for both statisticians and economists: • „education” of market participants • more information and increased focus on statistics/indicators enabling finer analysis
Globalisation and economic statistics – a personal experience Globalisation of statistical sources– profound change due to the internet (a major symbol and driving force of globalisation) • Freely accessible huge international databases (e.g.: Eurostat, AMECO, Groningen, EU KLEMS, PWT, [OECD]) • On-line access to several national statistics in user-friendly format • However: • several inconsistencies between • national and international databases; • within international databases • among international databases • more coordination would be helpful
II. Economic and statistical issues related to globalisation • „Real” economic/income convergence • The size of external imbalances • Problems with the CA/GDP indicator • An inadequate reaction to statistical problems due to globalisation: a critique of the notion of „dark matter”
1. Comparison of macroeconomic „performance” in a global context Levels of development („income levels”) and growth rates in international comparisons • Relative „income” level: economists’ shorthand for GDP/capita at PPP; but: • Output: per capita vs. per person employed (per hour worked) • GDP not a measure of „real” income – alternative measures • Growth rates („catching up”): similar problems: Interpretation of „income convergence”
The meaning of „real income” in international comparison (output vs. income; level vs. change) • Output: GDP at PPP • Per person • Per employed person • Per hour worked • Income: • GDP? • RGDI (real GDP corrected for the change in the terms of trade= implicit income transfers from/to RoW) • GNI = GDP+NFY • GNDI =GNI+NFTc • GNDI + net capital transfers • RGNI • RGNDI • RGNDI + net real capital transfers Change Related to the current account (CA= GNDI-C-I) S - Basic macroeconomic conceptswithout a name - Related to the fundamental concept of macroeconomic balance, i.e.: net lending (NL=CA+KA):
„Real income” growth in international comparison: two aspects of income growth – more relevant in a globalised world • A neglected aspect of „income convergence”: the role of the terms of trade*/ • Recent differences in real growth rates between • GDP • GNI, • GNDI • GNDI+cap.transfers**/ (does not exist in SNA/ESA) • No attempt to combine the two; the major goal is illustration of some neglected aspects */based on AMECO **/based on Eurostat
(A)RGDI/capita (change)real domestic income – the actual indicator of income-growth (thus of income-convergence) • Change in real GDP: represents change in the volume of output • Change in RGDI: change in the real income of a country (output corrected for the impact of changes in the terms of trade – i.e., effect of „trading gain or loss”) [RGDI= (GDPt/Pgdp +T) /GDPt-1)]*/ • Is it really „real”? • are foreign trade price indices accurate? • transfer pricing ? • Perhaps: measurement problems of Px and Pm (especially price index of services), but if so: • opposite measurement problems in net exports (volumes) • RGDI: essential indicator of (change in) macroeconomic income • by definition, its „level” cannot be interpreted at current prices • All in all: if ToT shows a trend, RGDI is relevant for income growth */T=(X-M)/Pxm – (X/Px – M/Pm)
Cumulative differences in RGDI and GDP growth rates since 1995
Cumulative difference between RGDI and GDP growth and annual growth rate of GDP:1995-2006 Percentage points percent Source: Eurostat, AMECO
The significance of changes in the terms of trade:number of years (at average GDP-growth) corresponding to the cumulative difference between RGDI and GDP: 1995-2006
Per capita GDP and RGDI relative levels in 2006 (EU15=100) Per capita GDP at 1995 PPS and RGDI at 1995 PPS Per capita GDP at 2006 PPS • Two points: • differences between constant (1995) and current (06) PPS levels • differences between RGDI and GDP levels at prices of 1995
GDP/cap (PPS) in 1995 (x) and in 2006; RGDI in 2006 at 1995 PPS (y)(EU-15=100) 2006 GDP/cap RGDI/cap GDP/cap (PPS) 1995
Comparison of GDP and RGDI convergence of CEE-10; 1995-2006 */ **/ */ log(Y06/Y95)/t; where Y= Yi/Yeu15 **/ log[(RGDI_06)/(GDP_06)]/(Conv_GDP)
(B) The role of capital transfers • GNDI + capital transfers: not an indicator of „income”, but: • in less-developed EU-countries (receiving capital-transfers from EU-funds): a fundamental indicator of disposable resources; • In these countries: GNDI [thus, gross savings (S) and the CA (=S-I) is a misleading indicator (asymmetry): • current contributions to the EU-budget decrease GNDI (S), but • no official macroeconomic aggregate indicating the impact of capitaltransfersfrom the EU to the recipient country • Need to define/quantify „non-official” macroeconomic aggregates (statistical indicators based on official statistics) for macro-analysis, e.g.
GNDI + capital transfers(change at constant prices) • Questions related to the „adequate” volume index of national income and disposable national resources • Deflator of • Net factor income (GDP or DE deflator) • Net current transfers (GDP or DE deflator) • Net capital transfers (GDP or GCF deflator)
GDP, GNI, GNDI and GNDI+captr.recent annual average volume changes: an illustration (CZ, HU, PL: 2004-2006) • Different „levels” in growth rates • (CZ: >6%; PL 5%; HU 4%), • different national patterns, but • a common feature in all 3 countries: • GNDI+captr. growth > than „headline” • indicators of economic growth (GDP/GNI) Source: own calculations based on Eurostat
Alternative indicators of „income convergence”: some lessons • Globalisation increase in openness (higher X/GDP and M/GDP ratios) • even small changes in ToT (Px/Pm) entail • large/increasing changes in real income [RGDI (=GDP/Pgpd +T)]; • this aspect of actual „income-convergence” (its cumulative impact) is mostly neglected (example: CZ vs. SK) • Globalisation increasing stocks of NFA/GDP; • increasing net income flows (recognised by official statistics): GNI (GNP) • Within EU increasing role of unrequited transfers (for NMS) • Current transfers (minor part): (recognised by official statistics): GNDI • Capital transfers (larger part): economists should reconstruct (GNDI+captr)
II. Economic and statistical issues related to globalisation • „Real” economic/income convergence • The size of external imbalances • Problems with the CA/GDP indicator • An inadequate reaction to statistical problems due to globalisation: a critique of the notion of „dark matter”
II/a. Interpreting and comparing external imbalances Realated to the problem of measuring and interpreting levels of income/development, i.e: • disposable income vs. disposable resources (GNDI or GNDI+capital transfers?) • The general problem of international comparisons: implications of differences in the level and structure of national prices
Interpreting external imbalances (cont’) • Globalisation involves increasing cross-country gross and net capital flows • Net capital flows involve external imbalances • Lazy (too busy) economic analysts observe (internationally compare) a single indicator of external (im-)balance: the current account/GDP ratio (CA/GDP) • This is supported by rules of thumb: • if CA/GDP above -(3-5)%: dangerous • However, this „wisdom” is misleading; there are problems with both the • numerator (CA) and the • denominator (GDP) • We focus at the economic-statistical problems of this popular indicator • There are some more fundamental economic problems with the CA/GDP ratio as well – these are not covered here, but a hint: • How deficits are financed (debt or FDI) • Domestic counterpart: • private vs. public • consumption or investment
Interpreting external imbalances: problems with the numeratorof CA/GDP • Relevance of the „capital account” of the BOP (involving capitaltransfers) • Interpretation of reinvested earnings • Interpreting changes in NFA (capital gains/losses on NFA) • NEO
Problems with the numerator: the relevance of CA+KA (1) • Several analysts missed the change in the concepts of the BOP: Present structure • Current account (CA) • Capital account (KA) [ former capital account] • Financial account (= former capital account) • NEO • dR • A practical problem: for less developed countries of the EU: • transfers from the EU: (mostly) in the KA • transfers to the EU: in the CA Net financing requirement
Problems with the numerator (1):CA and KA+CA in % of GDP (average of 2000-2005) Source: Eurostat
CA vs. CA+KA (in % of GDP): CZ, HU, PL HU CZ PL The role of capital transfers is increasing; most visibly for Poland
Problems of the numerator (2):reinvested earnings – a special expenditure • FDI income consists of two parts: • repatriated vs. • reinvested earnings • Reinvested: recorded as „outflow” in the CA, but • no actual transaction takes place; • remains in the country (a potential source of investment); • „finances” itself: same item in the current and financial account (does not affect the foreign exchange market) • Should be treated differently
Problems of the numerator (2): reinvested earnings in % of GDP (average of 2000-2005)
Problems with the denomiatorof the CA/GDP ratio • According to the received wisdom: the denominator of the CA/GDP-ratio „standardizes” the size of external balances – it corrects for differences in the size of national economies • This notion is mistaken: • CA measured at international prices, • GDP measured at domestic prices • The relative price level of GDP (PPP/exchange rate) is an increasing function of the level of real development (GDP/cap at PPP): Balassa-Samuelson effect (traded vs. non traded prices)
GDP/capita and relative GDP price levels (average 2000-2005)
Problems with the denomiator of the CA/GDP ratio (cont.) • In less developed countries – because of the low level of non-traded (service) prices, the CA/GDP overstates the relative size of external imbalances • E.g.: extremely low relative price of collective/government services in NMS of EU has no implication whatsoever for the relative size of external imbalances • How to handle the problem? • CA/GDP(PPP) • CA/foreign receipts • CA/Xgs • CA/CA_total receipts
Relative GDP price levels and the relative price level of goods, total services and government services (average of 2000-2005)
CA+KA in % of GDP, exports of goods and services and total current revenues(average of 2000-2005)
CA+KA in % of GDP at current prices and GDP at PPP(average of 2000-2005)
Summing up problems of international comparison of external imbalances • External imbalances are natural in a globalised world economy • However: sudden shifts in „risk appetite” perception of the size of external imbalances • The standard indicator (CA/GDP) - suffers from (at least) two weaknesses • CA: economically unsound indicator of external imbalance; relevance of • KA • Reinvested earnings • GDP (at current prices) does not correct for differences in the size of economies • However, if CA/GDP applied by many analysts, it effects perceptions of the public it may become a driving force of expectations
II. Economic and statistical issues related to globalisation • „Real” economic/income convergence • The size of external imbalances • Problems with the CA/GDP indicator • An inadequate reaction to statistical problems due to globalisation: a critique of the notion of „dark matter”
The notion of „dark-matter” (DM) in the BOP of nations: claims • H-S*/ claim: BOP statistics are false: US has no CA deficit • Why? Because US NII continuously positive NFA and ΔNFA (CA)also „has to be” positive • „Implied” CA balance reconstructed in two steps • Capitalising NII by an arbitrary 5% (P/E: 20) • Annual change in capitalised NII „implied” CA • Difference between actual and implied CA: exports of „dark matter” (intangible capital) */R. Hausmann - F. Sturzenegger: Global imbalances or bad accounting? The missing dark matter in the wealth of nations (May, 2006): http://200.32.4.58/~fsturzen/dark_matter_may06.pdf
US net international investment income(NII = net profits and interest) (million USD)
US: CA and two components: net exports (NX) and net investment income (NII)(% of GDP)
US: net investment income (NII), the CA, and NFA (at current cost and market value) in % of GDP
The world according Hausmann-SurzeneggerImplication: no global imbalances
Rate of return on market value of US foreign assets (FA) and liabilities (FL)
The notion of „dark-matter”: some critical remarks in defence of statistics • If BOP statistics inaccurate: why just NII right, if both CA and NFA wrong • Several plausible/relevant explanations for differences in rates of return on FA and FL: no need to „invent” new BOP statistics • Dangerous precedent: • if your story/theory does not fit the facts • or statistics (apparently or actually) contradict one another • you can simply construct data corresponding to your preferred interpretation • Having said this, • exports and imports of intangible capital (not covered by statistics) is quite possible under conditions of globalisation, • identifying and measuring it – constitutes a major challenge for both economists and statisticians
Globalisation and economic statistics: some conclusions • Need for cooperation between economists and statisticians • Education of the public and professional users of statistics: common task • Economists should be • more tolerant and be aware of the difficulties of supplying accurate statistics in the era of globalisation; • should express their dissatisfaction with statistics in constructive forms • Statisticians could be more open • to criticisms regarding inconsistencies, • to suggestions regarding • the importance of potential un- (or -mis-) recorded aspects of economic activity (e.g. intangible capital) • publishing non-traditional indicators of economic development and external balances • in revealing their specific problems related to the accuracy of statistics