Appendix G: Adjusting the current account and the external debt for inflation[37]
Consider the national accounting identity:
Y = C + I + (X - M) (F1)
where Y is national income, C includes both private and public consumption, I is total investment and X and M are exports and imports respectively.
Let S be measured savings and be offshore interest payments on the external debt so that:
C = Y - S - Rn (F2)
Substituting (D2) into (D1) and rearranging yields:
S - I = X - M - Rn (F3)
Now the nominal interest payment comprises a real and an inflation component so that:
Rn = Rr + Ri (F4)
Substituting (D4) into (D3) yields:
S = X - M - Rr - Ri + I (F5)
Consider the case in which inflation is zero, so that there is no capital repayment term Ri; then:
S* = X - M - Rr + I (F6)
It follows that the difference in savings with and without inflation is
S* - S = Ri (F7)
We now turn to the impact of inflation on the measured net external liabilities (NIIP).
The standard identity for the current account balance is:
CAB = S - I (F8)
Substituting (D5) for S yields:
CAB = X - M - Rr - Ri (F9)
which in the absence of inflation becomes
CAB* = X - M - Rr (F10)
so that the difference becomes
CAB* - CAB = Ri (F11)
Finally starting from the following identity for the stock of foreign liabilities:
NIIPt = NIIPt-1 + CABt-1 (F12)
Substituting (D9) into (D12) yields
NIIPt = NIIPt-1 +(X - M - Rr) t-1 - Rit-1 (F13)
So that
NIIPt = NIIPt-1 - Rit-1 + CAB*t-1 (F14)
In other words the observed level of net foreign liabilities will overstated by an amount equal to the implicit capital repayment (the inflationary component) of Rit-1.
| Total NZ investment abroad | Direct investment abroad (equity capital) | Portfolio investment abroad: equity securities | Total foreign investment in New Zealand | Direct investment in NZ (equity capital) | Portfolio investment in NZ: equity securities | NIIP | NIIP (% GDP) | NIIP excluding equity | |
|---|---|---|---|---|---|---|---|---|---|
| (1) | (2) | (3) | (4) | (5) | (6) | (7) | (8) | (9) | |
| 1989 | 7,201 | 5,263 | 197 | 51,346 | 8,412 | 1,378 | -44,145 | -63.1 | -39,815 |
| 1990 | 14,756 | 7,585 | 248 | 60,484 | 12,293 | 1,561 | -45,728 | -61.8 | -39,707 |
| 1991 | 20,897 | 13,108 | 461 | 68,357 | 13,294 | 1,766 | -47,460 | -62.9 | -45,969 |
| 1992 | 22,501 | 13,090 | 917 | 74,803 | 17,698 | 855 | -52,302 | -69.5 | -47,756 |
| 1993 | 18,962 | 12,425 | 1,128 | 82,854 | 21,244 | 2,473 | -63,892 | -82.5 | -53,728 |
| 1994 | 23,474 | 13,242 | 1,482 | 90,845 | 27,220 | 1,451 | -67,371 | -80.6 | -53,424 |
| 1995 | 24,935 | 14,353 | 1,888 | 95,994 | 31,966 | 2,283 | -71,060 | -79.5 | -53,051 |
| 1996 | 34,742 | 18,812 | 6,497 | 105,603 | 40,695 | 425 | -70,860 | -74.3 | -55,050 |
| 1997 | 33,096 | 18,838 | 7,040 | 112,966 | 43,641 | 1,503 | -79,870 | -79.8 | -60,604 |
| 1998 | 34,733 | 19,340 | 8,337 | 124,056 | 50,618 | 376 | -89,323 | -86.0 | -66,006 |
| 1999 | 40,121 | 30,024 | 8,367 | 127,261 | 50,632 | 453 | -87,140 | -82.5 | -74,446 |
| 2000 | 48,366 | 31,449 | 13,416 | 135,451 | 50,969 | 817 | -87,084 | -77.7 | -80,164 |
| 2001 | 85,026 | 17,031 | 15,264 | 172,549 | 38,153 | 9,620 | -87,523 | -73.9 | -72,045 |
| 2002 | 94,807 | 14,556 | 28,843 | 179,153 | 39,459 | 9,675 | -84,345 | -66.3 | -78,611 |
| 2003 | 90,684 | 15,970 | 22,590 | 180,565 | 40,348 | 11,251 | -89,880 | -67.1 | -76,842 |
| 2004 | 96,666 | 16,362 | 29,874 | 197,192 | 43,759 | 14,700 | -100,526 | -70.2 | -88,303 |
| 2005 | 102,296 | 16,555 | 32,382 | 212,859 | 44,385 | 16,631 | -110,562 | -72.2 | -98,484 |
| 2006 | 115,969 | 15,635 | 42,802 | 233,657 | 45,179 | 17,435 | -117,688 | -72.8 | -113,511 |
| 2007 | 123,820 | 16,694 | 44,747 | 252,080 | 49,759 | 16,774 | -128,261 | -75.5 | -123,168 |
| 2008 | 136,308 | 17,363 | 44,395 | 272,914 | 48,766 | 13,569 | -136,606 | -74.2 | -136,029 |
| 2009 | 136,923 | 21,164 | 32,535 | 293,932 | 47,569 | 10,038 | -157,009 | -84.6 | -153,101 |
| 2010 | 137,430 | 18,569 | 43,111 | 288,121 | 49,486 | 12,654 | -150,691 | -79.4 | -150,231 |
| 2011 | 166,972 | 19,794 | 46,221 | 299,325 | 48,594 | 13,533 | -132,353 | -66.7 | -136,241 |
| 2012 | 158,500 | 17,941 | 43,043 | 304,139 | 53,649 | 12,549 | -145,639 | -70.7 | -140,425 |
(1) 1992-2012: Statistics New Zealand:IIPA.S5AAA
1989-1991: Statistics New Zealand:IIPA.S4AD1
(2) 1992-2012: Statistics New Zealand:IIPA.S4AD1A1
1989-1991: Statistics New Zealand:IIPA.S4AD1
(3) 1992-2012: Statistics New Zealand:IIPA.S5AAA21
1989-1991: Statistics New Zealand:IIPA.S4AD1B1
(4) 1992-2012: Statistics New Zealand:IIPA.S5ALA
1989-1991: Statistics New Zealand:IIPA.S4AC1
(5) 1992-2012: Statistics New Zealand:IIPA.S5ALA11
1989-1991: Statistics New Zealand:IIPA.S4AC1A1
(6) 1992-2012: Statistics New Zealand:IIPA.S5ALA21
1989-1991: Statistics New Zealand:IIPA.S4AC1B1
(7) 1992-2012: (1)-(4)
(8) 1989-2012: (7)/(8) from Appendix B
(9) 1989-2012: [(1)-((2)+(3))]-[(4)-((5)+(6))]
| NIIP excluding equity (sign inverted) | Inflation | Inflation adjustment | NIIP with inflation adjustment | Net national saving | Net national saving to GDP ratio | Adjusted net national saving | Adjusted net national saving to GDP ratio | |
|---|---|---|---|---|---|---|---|---|
| (1) | (2) | (3) | (4) | (5) | (6) | (7) | (8) | |
| 1989 | 39,815 | 4% | 2,526 | 37,289 | 3,578 | 5.1 | 6,104 | 8.7 |
| 1990 | 39,707 | 8% | 1,762 | 37,945 | 3,160 | 4.3 | 4,922 | 6.7 |
| 1991 | 45,969 | 3% | 3,505 | 42,464 | 1,387 | 1.8 | 4,892 | 6.5 |
| 1992 | 47,756 | 1% | 1,345 | 46,411 | -1,382 | -1.8 | -37 | 0.0 |
| 1993 | 53,728 | 1% | 522 | 53,206 | -802 | -1.0 | -280 | -0.4 |
| 1994 | 53,424 | 1% | 701 | 52,723 | 1,932 | 2.3 | 2,633 | 3.2 |
| 1995 | 53,051 | 5% | 580 | 52,471 | 3,264 | 3.6 | 3,844 | 4.3 |
| 1996 | 55,050 | 2% | 2,522 | 52,528 | 3,780 | 4.0 | 6,302 | 6.6 |
| 1997 | 60,604 | 1% | 1,212 | 59,392 | 2,775 | 2.8 | 3,987 | 4.0 |
| 1998 | 66,006 | 2% | 740 | 65,266 | 2,945 | 2.8 | 3,685 | 3.5 |
| 1999 | 74,446 | 0% | 1,237 | 73,209 | 2,191 | 2.1 | 3,428 | 3.2 |
| 2000 | 80,164 | 2% | -291 | 80,455 | 1,928 | 1.7 | 1,637 | 1.5 |
| 2001 | 72,045 | 3% | 1,441 | 70,604 | 4,129 | 3.5 | 5,570 | 4.7 |
| 2002 | 78,611 | 3% | 2,543 | 76,068 | 7,230 | 5.7 | 9,773 | 7.7 |
| 2003 | 76,842 | 1% | 2,116 | 74,726 | 7,125 | 5.3 | 9,241 | 6.9 |
| 2004 | 88,303 | 2% | 1,306 | 86,997 | 7,955 | 5.6 | 9,261 | 6.5 |
| 2005 | 98,484 | 3% | 2,332 | 96,152 | 7,333 | 4.8 | 9,665 | 6.3 |
| 2006 | 113,511 | 4% | 3,232 | 110,279 | 3,776 | 2.3 | 7,008 | 4.3 |
| 2007 | 123,168 | 2% | 4,901 | 118,267 | 1,609 | 0.9 | 6,510 | 3.8 |
| 2008 | 136,029 | 4% | 2,721 | 133,308 | 3,786 | 2.1 | 6,507 | 3.5 |
| 2009 | 153,101 | 2% | 6,154 | 146,947 | -2,049 | -1.1 | 4,105 | 2.2 |
| 2010 | 150,231 | 2% | 2,832 | 147,399 | 3,251 | 1.7 | 6,083 | 3.2 |
| 2011 | 136,241 | 5% | 2,269 | 133,972 | 2,759 | 1.4 | 5,028 | 2.5 |
| 2012 | 140,425 | 1% | 7,411 | 133,014 | 1,428 | 0.7 | 8,839 | 4.3 |
(1) 1989-2012: Statistics New Zealand, authors' estimate.
(2) 1989-2012: Statistics New Zealand: CPI All groups CPI009AA
(3) 1989-2012: (3)=(2)[t-1]*(1)
(4) 1989-2012: (4)=(1)-(3)
(5) 1989-2012: Statistics New Zealand: SNDA.SG00NAC00B08
(6) 1989-2012: Statistics New Zealand
(7) 1989-2012: (6)+(3)
(8) 1989-2012: (7)/(8) from Appendix B
| Net debt | Inflation adjustment | Household saving | Adjusted household saving | Adjusted household saving rate | |
|---|---|---|---|---|---|
| (1) | (2) | (3) | (4) | (5) | |
| 1978 | -1863 | -261 | 212 | -49 | -1% |
| 1979 | -2058 | -252 | 329 | 76 | 1% |
| 1980 | -2187 | -272 | 441 | 170 | 1% |
| 1981 | -2138 | -383 | 412 | 29 | 0% |
| 1982 | -2350 | -354 | 552 | 198 | 1% |
| 1983 | -3184 | -541 | 458 | -82 | 0% |
| 1984 | -3648 | -303 | 354 | 51 | 0% |
| 1985 | -4242 | -200 | 378 | 178 | 1% |
| 1986 | -3955 | -657 | 371 | -286 | -1% |
| 1987 | -3235 | -337 | 907 | 570 | 2% |
| 1988 | -1464 | -277 | 2207 | 1930 | 5% |
| 1989 | 614 | 39 | 1697 | 1736 | 4% |
| 1990 | 2273 | 101 | 1368 | 1469 | 3% |
| 1991 | 2977 | 227 | 643 | 870 | 2% |
| 1992 | 4484 | 126 | 2064 | 2190 | 5% |
| 1993 | 6207 | 60 | 407 | 467 | 1% |
| 1994 | 8503 | 112 | -14 | 98 | 0% |
| 1995 | 10773 | 118 | -1134 | -1016 | -2% |
| 1996 | 13670 | 626 | -1408 | -782 | -1% |
| 1997 | 17758 | 355 | -1473 | -1118 | -2% |
| 1998 | 19583 | 219 | -1289 | -1070 | -2% |
| 1999 | 25754 | 428 | -2010 | -1582 | -3% |
| 2000 | 28893 | -105 | 691 | 586 | 1% |
| 2001 | 30358 | 607 | -3102 | -2495 | -4% |
| 2002 | 33270 | 1076 | -2731 | -1655 | -2% |
| 2003 | 42194 | 1162 | -6835 | -5673 | -8% |
| 2004 | 51409 | 760 | -5899 | -5139 | -7% |
| 2005 | 61350 | 1453 | -5145 | -3692 | -4% |
| 2006 | 69074 | 1967 | -7112 | -5145 | -6% |
| 2007 | 78704 | 3132 | -6580 | -3448 | -4% |
| 2008 | 77126 | 1543 | -3660 | -2117 | -2% |
| 2009 | 80295 | 3228 | -4232 | -1004 | -1% |
| 2010 | 79591 | 1500 | -564 | 936 | 1% |
| 2011 | 74277 | 1237 | 177 | 1414 | 1% |
(1) 1978-2011: RBNZ Household assets and liabilities; authors' calculations
Deposits less housing and consumer loans
(2) 1978-2011: Inflation[t-1]*(3)
(3) 1978-2011: Statistics New Zealand: SNDA.SG00NAC00B08
(4) 1978-2011: (5)+(4)
(5) 1978-2011: (6)/(8) from Appendix B.
Notes
- [37]The initial part of this appendix relating to savings draws on O'Mara and Walshaw (1992), Appendix 1, p.64.
