Macroeconomic analysis resources

0_overview.md

Overview plan

1. Statistics frameworks
2. Data sources
3. Good examples of macro analysis
4. Modelling
5. Special case - India

Cases to analyse

I thought of looking at some economic crises (eg Argentina, Russia 1998 and world in 2008), where things were dramatic, but more suggestions welcome.

Traditional topics

• Economic growth
• Monetary policy, inflation, interest rates
• Exchange rates
• Households, consumption, labour, inequality
• Corporate sector, stock market valuation
• Fixed asset investment
• Budget/fiscal issues
• Trade, current account

1_statistics.md

1. Statistics frameworks

This section goes a bit into methodologies of economic statistics and it may appear quite boring. Hopefully, there will be more life and interplay of terminology later in the review plan.

Focus:

• System of national accounts (SNA)
• Input-output tables (IO)
• Flow of funds (FoF)

Motivations:

• SNA systematically connect incomes generation, redistrubution (taxation and budget spending) and use of savings in a series of accounts, each account is a balance identity.
• IO table are useful for analysis by industry: cost structure, demand drivers, profitability, technology/structural shift
• FoF help understand 'who finances who' in the economy
• IO and FoF are extensions of SNA

Importance

Answers question: How should we look at economic data in a systematic way

Good for: economy structure, cross-country analysis, long trends

Drawbacks:

• (1) Mostly quantaties, not prices or asset valuations
• (2) Takes long to compile, time lags
• (3) Innovations (eg new industries, financial products) do not show up
• (4) SNA is a bit dull and tedious to follow.

Jargon:

• GDP sometimes called 'output', but it is value added, not total production revenue (common mistake)
• IO tables surface as 'supply and use tables'

Checkpoints:

1. Open and close stocks are related as opening stock + increases - decreases + valuation changes = ending stock.
2. Production + Import = Consumption + Export + Change in invetories
3. GDP can be equally calculated as sum of expenditures (C+I+G+EX-IM), sum of incomes (wages and gross profit), or output less intermediate consumption.
4. IO tables algebraically capited by AX + Y = X, where X is output, Y is final demand and AX is intermediate demand.
5. Flow of funds connects "net lending/borrowing" by sector with "net worth".
6. Arringing at S-I = NX, see some simple explaination here

Underlying concepts from economic statistics:

• stocks vs flows
• volume vs price changes
• current vs basic prices
• sectors of economy
• industry classification

Studying

SNA

The hard way, a bit of a self-torture: SNA2008, together with a national accounts report of a domestic statistics office. Equally challenging as SNA2008: ESA2010

Stat offices on national accounts:

• Hungary
• Russia,
• UK,
• OECD countries.

Note:

SNA is a catch-all framework, even small transactions (eg capital transafers from abroad) have their spot, making it harder to grasp core identities and relashionships. Also there is a jump in scope when presented with sector accounts after economy as a whole accounts. Different types of taxes also pollute the big picture.

Studying SNA methodology is worth when you have experience with some parts of economic statistics and got an interest to assemble pieces into a bigger, coherent and internationally comparable picture. As an SNA use you are often exposed with just several segments of accounts, notably final demand drivers, industries contribution to GDP, fixed capital formation. It also 'clicks' when you connect notions and variables from a macro course (C, I, G) with actual stitistical defintions and maybe even SNA codes.

FoF

For flow of funds is easier to understand - it is closer to accounting balances.

For example see summary tables in flows and stocks fo the US flow of funds or spot some international comparisons here.

IO Tables

Detailed supply and use tables for US economy are here. The one with 405 industries is very rich data. You can assess the cost structure of McDonalds, see which industries have highest value added (tobacco), and a lot of other cool stuff.

Some additional material and links are down in comments.

Proposed excercise: Hungary national accounts

Let's look at integrated table for national accounts. This format is a bit artificial

• same values appear many times, hard to establish the balancing identities and motivation why it is piled up this way. Nonetheless, let's treat the table lightly and at least try extract some information from it.

Steps:

• Download integrated accounts for Hungary - http://www.ksh.hu/docs/hun/xftp/idoszaki/monsz/monsz9514/t1001_integralt_1995_2014.xls
• Let's look at year 2014.
• Go over terms in columns L:N, try establish reltionships between terms.
• Find a GDP figure (hint - cross section of Value added, gross / GDP and Total economy).
• How is GDP composed? What happens next to it?
• Which sectors are net lenders and which are net borrowers?
• How much money did Hugarian government borrow in 2014?

Financial Accounts Matrix--Transactions for 2018
https://www.federalreserve.gov/releases/z1/20191212/z1.pdf

Figure F1.1: Sequence of accounts in a graphic presentation, with changes in the balance sheets reflecting economic transactions only

Note: can be even simplier if we exclude rest of the world (ROW), study identtites for closed economy first.

https://unstats.un.org/unsd/publication/SeriesF/seriesF_85.pdf

Figure 2.1:Diagram of the integrated accounts for the total economy

https://unstats.un.org/unsd/nationalaccount/docs/SNA2008.pdf

Social accounting matrices (SAMs) 'flatten' SNA sequence of accounts to one matrix - easier to follow identities.

https://www.slideserve.com/truong/social-accounting-matrices-and-their-use-in-economics-modelling

https://twitter.com/D_A_Irwin/status/1215410057266987008

https://fredblog.stlouisfed.org/2018/09/do-imports-subtract-from-gdp/