UNECE – National Accounts Financial Accounts Michael Connolly – National Accounts, CSO Ireland...

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


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 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


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


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


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.


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


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 ???


Financial Accounts in Hungary

Csaba Ilyes, Head of Financial Accounts Division, Magyar Nemzeti Bank (Central Bank of Hungary)


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


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


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


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?


Thank you for your attention


UNECE – National Accounts Financial Accounts Michael Connolly – National Accounts, CSO Ireland...

Documents

Transcript of UNECE – National Accounts Financial Accounts Michael Connolly – National Accounts, CSO Ireland...