Globalisation and economic statistics: a „multifunctional” user’s perspective Gábor Oblath National Bank of Hungary Monetary Council 63rd SPC and 93rd

Globalisation and economic statistics:

a „multifunctional” user’s perspective

Gábor OblathNational Bank of Hungary

Monetary Council

63rd SPC and 93rd DGINS Conference19–21 September 2007

Budapest, Hungary

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

globalisationMeasuring, 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 datamoreover: incentives to obscure legal borders (e.g. tax

„optimisation”) • Increasing importance of cross-border

transactions from a macroeconomic perspectivegovernment policy international organisationseconomic 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

very simple (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

1. „Real” economic/income convergence

2. The size of external imbalancesa) Problems with the CA/GDP indicator

b) 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

Related to the current account (CA= GNDI-C-I)

- Basic macroeconomic concepts without a name - Related to the fundamental conceptof macroeconomic balance, i.e.:net lending (NL=CA+KA):

S

Change

„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

-0,05

0,00

0,05

0,10

0,15

0,20

0,25

0,30

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Bulgaria Czech Republic

Estonia Latvia

Lithuania Hungary

Poland Romania

Slovenia Slovakia

LIT

RO

CZ

SK

Cumulative difference between RGDI and GDP growth and annual growth rate of GDP:

1995-2006

-10%

-5%

0%

5%

10%

15%

20%

25%

Lith

uan

ia

Ro

ma

nia

Bul

garia

Cz

ech

Rep

ublic

De

nma

rk

Est

on

ia

Ne

the

rlan

ds

Spa

in

Un

ited

Kin

gdo

m

Gre

ece

Slo

veni

a

Mal

ta

EU

-27

Por

tuga

l

Cy

pru

s

Ital

y

Latv

ia

Fra

nc

e

Aus

tria

Pol

and

Ge

rman

y

Irel

and

Hu

ngar

y

Bel

giu

m

Slo

vaki

a

Sw

eden

Fin

lan

d

Cum diff GDI-GDP

GDP growth rate

percent

Percentage points

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

-3

-2

-1

0

1

2

3

4

5

Rom

ania

Bulgaria

Lithuania

Czech R

epublic

Denm

ark

Netherlands

United K

ingdom

Spain

Estonia

Greece

Slovenia

Malta

Latvia

Cyprus

Portugal

Italy

France

Poland

Ireland

Austria

Hungary

Slovakia

Germ

any

Belgium

Finland

Sw

eden

Per capita GDP and RGDI relative levels in 2006 (EU15=100)

30

35

40

45

50

55

60

65

70

75

80

30 35 40 45 50 55 60 65 70 75 80

95_PPS

GDI_95PPS

BURO

PO

LALIT SK

HU

EE

CZSI

Per capita GDP at 2006 PPS

Per capitaGDP at1995 PPSand RGDI at1995 PPS

Two points: 1) differences between constant (1995) and current (06) PPS levels 2) 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)

20

30

40

50

60

70

80

20 30 40 50 60 70 80

2006_PPS

GDI_95PPS

RO BU

LA

LIT

EE

PO

SK

HU

SI

CZ

GDP/cap (PPS) 1995

2006GDP/capRGDI/cap

Comparison of GDP and RGDI convergence of CEE-10; 1995-2006

EU15=100

Average annual speed

of convergence

GDP/cap 95

GDP/cap 06

RGDI/cap06

RGDI_06/ GDP_06

ConvGDP

ConvGDI

Number of years of GDP/cap

convergence to fill the RGDI-

GDP gap Bulgaria 27,9 33,2 35,8 107,6 1,6% 2,3% 4,5 Czech Republic 63,1 71,0 75,6 106,4 1,1% 1,7% 5,7

Estonia 31,1 59,6 60,9 102,1 6,1% 6,3% 0,4 Latvia 27,0 51,8 51,7 99,9 6,1% 6,1% 0,0 Lithuania 30,0 51,5 57,6 111,8 5,0% 6,1% 2,3 Hungary 45,4 59,6 58,4 97,9 2,5% 2,3% -0,9 Poland 36,7 48,6 48,2 99,2 2,6% 2,5% -0,3 Romania 27,2 31,3 34,4 110,1 1,3% 2,2% 7,6 Slovenia 61,6 77,1 77,7 100,8 2,1% 2,1% 0,4 Slovakia 40,0 52,4 50,8 97,0 2,5% 2,2% -1,3

*/

*/ 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

capital transfers from 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)

CZ

5,8%

5,9%

6,0%

6,1%

6,2%

6,3%

6,4%

6,5%

6,6%

6,7%

GDP GNI GNDI GNDI+captr

HU

3,8%

3,8%

3,9%

3,9%

4,0%

4,0%

4,1%

4,1%

4,2%


PL

4,4%

4,6%

4,8%

5,0%

5,2%

5,4%

5,6%


• 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/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 numerator of CA/GDP

1. Relevance of the „capital account” of the BOP (involving capital transfers)

2. Interpretation of reinvested earnings

3. Interpreting changes in NFA (capital gains/losses on NFA)

4. 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 financingrequirement

Problems with the numerator (1):CA and KA+CA in % of GDP

(average of 2000-2005)

-10%

-9%

-8%

-7%

-6%

-5%

-4%

-3%

-2%

-1%

0%

CZ EST HU PL SK GR ESP PT IRL USA

CA/GDP

(CA+KA)/GDP

Source: Eurostat

CA vs. CA+KA (in % of GDP): CZ, HU, PL

-7%

-6%

-5%

-4%

-3%

-2%

-1%

0%

2005 2006

CA+KA

CA-7%

-6%

-5%

-4%

-3%

-2%

-1%

0%

2005 2006

CA+KA

CA

-4,0%

-3,5%

-3,0%

-2,5%

-2,0%

-1,5%

-1,0%

-0,5%

0,0%

2005 2006

CA+KA

CA

CZ HU

PL

The role of capital transfers isincreasing; most visibly forPoland

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)

-12%

-10%

-8%

-6%

-4%

-2%

0%

CZ EST HU PL ESP PT USA

CA/GDP

(CA+KA)/GDP

(CA+KA+IRE)/GDP

(CA+KA+NRE)/GDP

Problems with the denomiator of 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)

40

50

60

70

80

90

100

40 50 60 70 80 90 100

GD

P r

elat

ive

pri

ce

LV

LT

EE

PL

SK

HUCZ

MT

PT

SL

GR

CY

ES

Per capita GDP (PPS)

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


20

30

40

50

60

70

80

90

100

40 50 60 70 80 90

Goods

Services

Gov. services

SK

LT LV

CZ PL

HU EE

MT SL PTGR ES

CY

GDP relative price level

CA+KA in % of GDP, exports of goods and services and total

current revenues (average of 2000-2005)

-30%

-25%

-20%

-15%

-10%

-5%

0%

CZ EST HU PL SK GR ESP PT

(CA+KA)/GDP

(CA+KA)/Xgs

(CA+KA)/CFR

CA+KA in % of GDP at current prices and GDP at PPP


-9%

-8%

-7%

-6%

-5%

-4%

-3%

-2%

-1%

0%

CZ EST HU PL SK GR ESP PT IRL USA

(CA+KA)/GDP

(CA+KA)/GDP_PPP

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





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

http://200.32.4.58/~fsturzen/dark_matter_may06.pdf

US net international investment income

(NII = net profits and interest) (million USD)

0

10 000

20 000

30 000

40 000

50 000

60 000

70 000

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

US: CA and two components: net exports (NX) and net investment income (NII)

(% of GDP)

-7%

-6%

-5%

-4%

-3%

-2%

-1%

0%

1%

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

NII/GDP

CA/GDP

NX/GDP

US: net investment income (NII), the CA, and NFA

(at current cost and market value) in % of GDP

-24%

-22%

-20%

-18%

-16%

-14%

-12%

-10%

-8%

-6%

-4%

-2%

0%

2%

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

NII/GDP

CA/GDP

NFA_market/GDP

NFA_curcost/GDP

The world according Hausmann-SurzeneggerImplication: no global imbalances

Rate of return on market value of US foreign assets (FA) and liabilities (FL)

2%

3%

4%

5%

6%

7%

8%

9%

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

iFL_market

iFA_market

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

Documents

Globalisation and economic statistics: a „multifunctional” user’s perspective Gábor Oblath National Bank of Hungary Monetary Council 63rd SPC and 93rd