5) l6 - Macrointcapitulo 17 en Español

Balance of Payments I: The Gains
from Financial Globalization 17

Chapter 17: Balance of Payments I: The Gains from Financial Globalization
1 The Limits on How

Much a Country
Can Borrow: The
Long-Run Budget
Constraint
2 Gains from
Consumption
Smoothing
3 Gains from Efficient
Investment
4 Gains from
Diversification of Risk
5 Conclusions
Prepared by:
Fernando Quijano
Dickinson State University
Copyright © 2011 Worth Publishers· International Economics· Feenstra/Taylor, 2/e 1 of 99
Introduction
• Economías abiertas financieramente pueden enfrentar

mejor los choques externos:
■ Suavizamiento del consumo: mantener el consumo
cuando el ingreso fluctúa
■ Inversión eficiente: pedir prestado para construir un

stock de capital productivo
■ Diversificación del riesgo: comercio de acciones
(inversiones) entre países

Introduction
FIGURE 17-1

1 The Limits on How Much a Country Can Borrow:
The Long-Run Budget Constraint
• La restricción presupuestal de largo plazo (LRBC) indica

porque un país debe en el largo plazo vivir dentro de sus
posibilidades: pedir prestado lo que pueda pagar en el
futuro

Supuestos
■ Precios flexibles (variables reales).

■ El país es una pequeña economía abierta (no influye

precios)
■ Tasa de interés real mundial (Las deudas pagan una
tasa de interés real r*) (ilimitado cantidad de captación y
colocación)
■ Los pasivos L y activos A pagan y reciben una misma
tasa de interés real r*
■ No hay transferencias unilaterales (NUT = 0) ni de capital
(KA = 0) y no hay ganancias de la riqueza externa. Por
tanto, la CA solo depende de TB y NIFA (r*W)
Calculating the Change in Wealth Each Period
WN  WN  WN –1  TBN  r *WN –1

       
Change in external wealth Trade balance Interest paid/received
this period this period on last period's external wealth
Calculating Future Wealth Levels
WN  WN  TBN  (1  r )*WN –1

      
External wealth at Trade balance Last period's external wealth
the end of this period this period plus interest paid/received

The Budget Constraint in a Two-Period Example
Al final del periodo 0, W 0  (1  r )W 1  TB0

*
Al final del periodo 1 W1  0  (1  r * )W0  TB1

La BC de 
2 periodos es:
W1  0  (1  r * ) 2W1  (1  r * )TB0  TB1
(1  r* ) 2 W 1  (1  r* )TB0  TB1

Present Value Form
* TB1
- (1+ r )W- 1 = TB0 +
     *
Minus the present value of
(1+ r
      )
wealth from last period Present value of all present
and future trade balances

Extending the Theory to the Long Run
Si N tiende a infinito la LRBC es:
TB1 TB2 TB3 TB4

 (1  r )W1 *
 TB0     
     (1  r ) (1  r ) (1  r ) (1  r )
* * 2 * 3 * 4
Minus the present value of                   
wealth from last period Present value of all present and future trade balances
(17-1)
Un país deudor debe tener una balanza comercial

positiva en el futura para compensar su desbalance en
términos de valor presente

La LRBC nos dice que en el largo plazo el (GNE) esta

limitado por cuanto puede producir (GDP):
TB  GDP  GNE
GDP1 GDP2 GNE1 GNE2

- (1+ r * )W- 1 +GDP0 + *
+ * 2
+ =GNE 0 + *
+ * 2
+
    

Minus the present value of    (1+ r )  (1+  r )      (1+  r )  (1+  r )  
wealth from last period
         Present  value of present
 andfuture
 GDP
  Present value of present and future GNE
=
Present value of the country's resources Present value of the country's spending
(17-3)

APPLICATION
FIGURE 17-3

2 Gains from Consumption Smoothing
The Basic Model
■ GDP= Q. El único input es el trabajo (L).

■ El nivel de C debe ser consistente con la LRBC.
■ GNE=C, I=0, G=0

■ W−1=0.
■ la economía es pequeña y el ROW es grande y domina
la tasa de interés real r*. Si r* = 0.05 = 5% anual

LRBC requiere que el PV actual y futuro TB=0:
0 =Present value of TB =Present

   value
   ofQ - Present
   value
  ofC
Initial wealth is zero Present value of GDP Present value of GNE
Present va lue of Q  Present

    va
 lue
  ofC (17-4)
       
Present value of GDP Present value of GNE

Closed versus Open Economy: No Shocks

TABLE 17-1
A Closed or Open Economy with No Shocks Output equals consumption. Trade

balance is zero. Consumption is smooth.

Closed Economy: Shocks

Si se presenta un inesperado y temporal shock sobre el GDP de –21
unidades en el periodo 0. Q cae a 79 en el periodo 0 y luego retorna al
nivel de 100. el PV pasa de 2,100 a 2,079, una caída de 1%. (GDP
volátil)
TABLE 17-2
A Closed Economy with Temporary Shocks Output equals consumption. Trade

balance is zero. Consumption is volatile.

Open Economy: Shocks

El choque es absorbido o suavizado por el papel de la TB (préstamo del ROW)
PV de C = 99 + 99/0.05 = 99 + 1,980 = 2,079.
TABLE 17-3
Shocks An Open Economy with Temporary Shocks A trade deficit is run when
output is temporarily low. Consumption is smooth.
Lección: cuando el producto fluctúa, una economía

cerrada no puede suavizar el consumo, pero una abierta si
puede.

Un préstamo de ΔQ − ΔC en el periodo 0 requiere pagos

de intereses por r*(ΔQ − ΔC) es los siguientes años
Si los subsiguientes superávit comerciales de ΔC son para
cubrir estos pagos de intereses, luego sabemos que ΔC
debe ser escogido
 Q- DC)
r * ´ (D  = DC

Trade surplus
Amount borrowed
in year 0 in subsequent years
     
Interest due in subsequent years
luego ΔC:
r*
C  Q
1 r *
ΔC = (0.05/1.05) × (21) = 1, luego C debio caer 1 unidad

Smoothing Consumption when a Shock Is Permanent
Cuando el choque es permanente el producto será

inferior en ΔQ en todos los años, luego la única vía que
una economía (cerrada o abierta) puede satisfacer la

LRBC mientras mantiene suavizado el consumo es
reducir el consumo en ΔC= ΔQ durante todos los años.
(ej. Caida del ingreso 50% en adelante requiere un ajuste
del consumo en la misma magnitud).

APPLICATION Consumption Volatility and Financial Openness
FIGURE 17-5 (2 of 2)
Consumption Volatility Relative to Output Volatility (continued)

The average volatility in each group is shown. Only the most financially open
countries have volatility ratios less than 100%. The high ratios in groups 1 to 8
show, perversely, that consumption is even more volatile than output in these
countries.

APPLICATION
Precautionary Saving, Reserves, and Sovereign
Wealth Funds
Ahorro de precaución
i) Acumulación de reservas internacionales

ii) Fondos de riqueza soberana (FAEP en Colombia, Cobre
en Chile, )

APPLICATION
Precautionary Saving, Reserves, and Sovereign
Wealth Funds
HEADLINES
Copper-Bottomed Insurance
Many developing countries experience output volatility. Sovereign wealth funds
can buffer these shocks, as recent experience in Chile has shown.
During a three-year copper boom, Chile set aside$48.6 billion,

more than 30 percent of the country’s gross domestic product.
At the time, the government was criticized for its austerity, but
after the global credit freeze in 2008, Chile unveiled a $4 billion
package of tax cuts and subsidies, including aid to poor families.
“People finally understood what was behind his ‘stinginess’ of

early years,” said Sebastian Edwards, a Chilean economist at
the University of California, Los Angeles.
3 Gains from Efficient Investment
Openness delivers gains not only on the consumption side

but also on the investment side by improving a country’s
ability to augment its capital stock and take advantage of
new production opportunities.
The Basic Model

We now assume that producing output requires labor and
capital, which is created over time by investing output.
When we make this change, the LRBC (17-4) must be
modified to include investment I as a component of GNE.
We still assume that government consumption G is zero.
With this change, the LRBC becomes:
0  Present value of TB

Initial wealth is zero

3 Gains from Efficient Investment
D Q ³ r ´ DK
*

Output increase Interest payment due
in subsequent periods in subsequent periods

to finance initial investment

4 Gains from Diversification of Risk
FIGURE 17-10 (2 of 2)
Return Correlations and Gains from Diversification (continued)

In panel (b), shocks are perfectly symmetric (correlation = +1), capital income in the
two countries is perfectly positively correlated. Risk cannot be reduced, and there
are no gains from diversification.
In panel (c), when both types of shock are present, the correlation is neither
perfectly negative nor positive. Risk can be partially eliminated by holding the
world portfolio, and there are still some gains from diversification.

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Balance of Payments I: The Gains

from Financial Globalization 17

1 The Limits on How

• Economías abiertas financieramente pueden enfrentar

■ Inversión eficiente: pedir prestado para construir un

Copyright © 2011 Worth Publishers· International Economics· Feenstra/Taylor, 2/e 2 of 99

Copyright © 2011 Worth Publishers· International Economics· Feenstra/Taylor, 2/e 3 of 99

• La restricción presupuestal de largo plazo (LRBC) indica

Copyright © 2011 Worth Publishers· International Economics· Feenstra/Taylor, 2/e 4 of 99

■ Precios flexibles (variables reales).

■ El país es una pequeña economía abierta (no influye

WN  WN  WN –1  TBN  r *WN –1

Calculating Future Wealth Levels

WN  WN  TBN  (1  r )*WN –1

Copyright © 2011 Worth Publishers· International Economics· Feenstra/Taylor, 2/e 6 of 99

Al final del periodo 0, W 0  (1  r )W 1  TB0

Al final del periodo 1 W1  0  (1  r * )W0  TB1

W1  0  (1  r * ) 2W1  (1  r * )TB0  TB1

(1  r* ) 2 W 1  (1  r* )TB0  TB1

Copyright © 2011 Worth Publishers· International Economics· Feenstra/Taylor, 2/e 8 of 99

TB1 TB2 TB3 TB4

Un país deudor debe tener una balanza comercial

Copyright © 2011 Worth Publishers· International Economics· Feenstra/Taylor, 2/e 9 of 99

La LRBC nos dice que en el largo plazo el (GNE) esta

GDP1 GDP2 GNE1 GNE2

Copyright © 2011 Worth Publishers· International Economics· Feenstra/Taylor, 2/e 10 of 99

Copyright © 2011 Worth Publishers· International Economics· Feenstra/Taylor, 2/e 11 of 99

The Basic Model

■ GDP= Q. El único input es el trabajo (L).

■ GNE=C, I=0, G=0

Copyright © 2011 Worth Publishers· International Economics· Feenstra/Taylor, 2/e 12 of 99

LRBC requiere que el PV actual y futuro TB=0:

0 =Present value of TB =Present

Initial wealth is zero Present value of GDP Present value of GNE

Present va lue of Q  Present

Copyright © 2011 Worth Publishers· International Economics· Feenstra/Taylor, 2/e 13 of 99

Closed versus Open Economy: No Shocks

A Closed or Open Economy with No Shocks Output equals consumption. Trade

Copyright © 2011 Worth Publishers· International Economics· Feenstra/Taylor, 2/e 14 of 99

Closed Economy: Shocks

A Closed Economy with Temporary Shocks Output equals consumption. Trade

Copyright © 2011 Worth Publishers· International Economics· Feenstra/Taylor, 2/e 15 of 99

Open Economy: Shocks

Lección: cuando el producto fluctúa, una economía

Copyright © 2011 Worth Publishers· International Economics· Feenstra/Taylor, 2/e 17 of 99

Un préstamo de ΔQ − ΔC en el periodo 0 requiere pagos

debe ser escogido

ΔC = (0.05/1.05) × (21) = 1, luego C debio caer 1 unidad

Smoothing Consumption when a Shock Is Permanent

Cuando el choque es permanente el producto será

una economía (cerrada o abierta) puede satisfacer la

Copyright © 2011 Worth Publishers· International Economics· Feenstra/Taylor, 2/e 19 of 99

Consumption Volatility Relative to Output Volatility (continued)

Copyright © 2011 Worth Publishers· International Economics· Feenstra/Taylor, 2/e 20 of 99

i) Acumulación de reservas internacionales

Copyright © 2011 Worth Publishers· International Economics· Feenstra/Taylor, 2/e 21 of 99

During a three-year copper boom, Chile set aside$48.6 billion,

“People finally understood what was behind his ‘stinginess’ of

Openness delivers gains not only on the consumption side

The Basic Model

Copyright © 2011 Worth Publishers· International Economics· Feenstra/Taylor, 2/e 23 of 99

in subsequent periods in subsequent periods

Copyright © 2011 Worth Publishers· International Economics· Feenstra/Taylor, 2/e 24 of 99

Return Correlations and Gains from Diversification (continued)