unece – national accounts financial accounts michael connolly – national accounts, cso ireland...
TRANSCRIPT
UNECE – National AccountsFinancial Accounts
Michael Connolly – National Accounts, CSO Ireland
April 2010
Agenda item 4
Theory and Practice of Holding Gains and Losses – Is the importance of revaluation reflected in the National Accounts ?
Vaclav Rybacek, Czech Statistical Office
April 2010WGGNA - Merchanting
Structure of Paper
Theoretical arguements - wealth v’s saving Changes in Net wealth resulting from changes in
relative prices Savings are Disposable income less final
consumption
Practical issues – compilation of revaluation account
Discussion and Conclusions
April 2010UNECE – Financial Accounts
Theory and Practice - Holding Gains and Losses Discussion on the link between Savings and
Revaluation
Purpose of National Accounts to provide database on consumption and savings behaviour of agents
Highlights the fact that Use of Disposable income account excludes revaluations
April 2010UNECE – Financial Accounts4
April 20, 2023National Accounts Income5
Opening Position1 Jan 2010
Net Purchases (+)/Sales (-)
Foreign exchange changes
Market Price Changes
Other Changes
Closing Position31 March 2010
100 10 +5 +5 0 120
Holding gains/losses Revaluation = +10
STOCK –FLOW FOR QUOTED EQUITY
Theoretical Arguements - Wealth v’s Saving The impact of Holding Gains/Losses on
consumption behaviour Wealth effect - gains on Financial assets or real estate
gains (capital account) have an impact on consumption Keynes windfall gains and losses - exclude from
disposable income High volatility of gains/losses – not sufficiently strong
permanent component => exclude holding gains from Disposable Income
Revaluation not considered as a source of consumption or saving in SNA/ESA
April 2010UNECE – Financial Accounts
Theory and Practice - Holding Gains and Losses Example given of the use of the proceeds of sale
of CEZ shares to fund pension reforms – is this revaluation or disinvestment and reinvestment?
Distinction between “expected” and “pure” holding gains
Some link between production and expected holding gains - is this related to the projection of future earnings?
Impact of tax on gains – included in non-financial accounts while impact of gains are excluded
April 2010UNECE – Financial Accounts7
April 20, 2023UNECE – Financial Accounts
8
Opening Position
Net Purchases/Sales
Foreign exchange changes
Market Price Changes
Other Changes
Closing Position
120 -10 0 0 0 110Holding gains/losses Revaluation = 0
STOCK –FLOW FOR QUOTED EQUITY
1. OS +T+OC+R = CS
2. OS + (S - GCF) +OC+R = CS (substituted T with saving – capform)
Theoretical Arguements - Wealth v’s Saving Don’t really know if transactions are always
equivalent to saving less capital formation How does disinvestment fit into this analysis? For any asset, the balance sheet change, the
difference between S (Saving) and I (CapForm) are taken up by financial investment (also I)
Therefore for any given asset-liability the balance sheet change is equal to I (investment) and revaluations plus other changes
April 2010UNECE – Financial Accounts
Theoretical Arguements - Wealth v’s Saving Therefore for any sector the net sum of net worth changes Δ Net Worth = Saving +Reval and Other changes The net revaluation can provide a potential
source of funds – wealth effect Actual withdrawal from accumulated assets is
disinvestment
April 2010WGGNA - Merchanting
Compilation of Revaluation Accounts Quantification of revaluation is a difficult task -
asymmetric information from two sides of a financial transaction
Use of single source - assets side to produce accounts
Data sources – Surveys transactions, revaluation and other
changes reported Banking statistics and admin data - transactions
and revaluation derived from stock data Derivatives and securities other than shares most
problematic
April 2010UNECE – Financial Accounts11
Compilation of Revaluation Account
Discussion regarding Table 1 - how is it that the financial assets and liabilities do not balance for the overall economy ? Does it exclude ROW ?
“Rise in net worth caused by Non-financial assets.” Is this a structural point related to the Czech Republic only?
Some further elaboration if possible in relation to AF.7 Other Payables data issues.
April 2010WGGNA - Merchanting
Observations
IFRS 9 - introduces the revaluation effect into the Profit and Loss accounts for corporations
It is clear that revaluation or holding gains/losses have an impact on consumption and disposable income
The savings measure is more correctly required to reflect the total of disposable income over final consumption
Importance of revaluations in business cycle analysis through real and neutral holding gains/losses
April 2010UNECE – Financial Accounts13
Conclusions
Careful how we think about reval We can have a wealth effect arising from
revaluations Once we liquidate these assets with positive
revaluation we have a disinvestment - offset by another investment
The proceeds are used to invest elsewhere or in bank deposits or Capital Formation.
The dominant strategy in an ever rising price level environment is to be a holder of non-financial assets (property) and a debtor ???
April 2010WGGNA - Merchanting
Financial Accounts in Hungary
Csaba Ilyes, Head of Financial Accounts Division, Magyar Nemzeti Bank (Central Bank of Hungary)
April 2010UNECE – Financial Accounts15
Purpose and Characteristics Development of the Financial (transactions) and
Balance Sheet (positions) Accounts in Hungary since 2003
Quarterly and Annual time series from 1990 Principles
valuation, substance over form etc. Accruals accounting Market prices ∑ components of changes of stocks ≡ changes in stocks Correspondence between assets and liabilities Consistency - consolidated/non consolidated –
annual/quarterly
April 201016 UNECE – Financial Accounts
Purpose and Characteristics
Market valuation and difficulties with non-traded securities
Methodologies – Accruals, Position plus accrued interest, Institutional sectors
Presentation, stock –flow, consolidation, Quarterly vs annual accounts, revisions etc. Institutional Units - Institutional Sectors Data sources
April 2010UNECE – Financial Accounts
Data
Data sources: Central Bank(BOP, Monetary Statistics, Securities
stats) Annual reports of Corporations Supervisory reports (Pension Funds, Investment
Funds etc.) Tax Returns for corporate balance sheets Government budgetary data NPIs from CSO
April 201018 UNECE – Financial Accounts
Data Data hierarchy (1. Securities, 2.BOP 3.MFI Balance
Sheets.......8. NPIs) Data gaps - cash, loans,insurance technical
reserves, derivatives and other receivables are incomplete?
NFCs, h/h good quality Estimations - flows from stocks, valuations from
currency changes Net lending /borrowing - less reliable that for Non-
Financial Accounts Impact of inflation on income and positions Co-operation with CSO/Central Bank to reduce
imbalances B9/B9f
April 2010UNECE – Financial Accounts
Conclusions and Questions
Use of a single source at instrument level - good for symmetry assets/liabilities - could obscure data problems
Quality of household data - “Financial Accounts of Households are of high quality” related to financial intermediaries
Substantial use of Administrative records – align with ESA /SNA accounting standards
April 2010UNECE – Financial Accounts20
Conclusions and Questions
Is it really appropriate to measure difference between B.9 and B.9f as a % of GDP?
Are the B.9 and B.9f for Govt and Corporations generally positive and ROW and H/Holds generally negative?
What about SPEs in Hungary? Financial Accounts can be compiled by Central
Bank or NSI - which is optimal? Does it depend on who is the BOP compiler?
April 2010UNECE – Financial Accounts
Thank you for your attention
April 2010WGGNA - Merchanting