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Understanding Financial Accounts

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Understanding Financial Accounts seeks to show how a range of questions on financial developments can be answered with the framework of financial accounts and balance sheets, by providing non-technical explanations illustrated with practical examples: What are the basic principles, concepts and definitions used for this framework which is part of the system of national accounts? What sources and which methodologies are used for their compilation? How are these used to monitor and analyse economic and financial developments? What can we learn about the 2007-2009 economic and financial crisis when looking at the numbers provided in this framework? What can we learn about financial risks and vulnerabilities? This publication is intended for young statisticians, students, journalists, economists, policy makers and citizens, who want to know more about the statistics that are at the heart of the analysis of financial developments in OECD economies.

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The financial relationships with the Rest of the World

The accounts for the “Rest of the World”, which record the transactions and positions of residents of a country with non-residents, are key to understanding many domestic and international economic developments. According to economic literature, the balance of current and capital transactions with the Rest of the World is linked with the growth and international competitiveness of an economy, through the impact of issues such as productivity, costs of production factors, product/market diversification, tariff regimes, development of the financial system, as well as other factors such as the ageing of population, the propensity to save and the trade openness of the country. This chapter discusses the interpretation of persistent imbalances, and its relationship with the international investment position or the indebtedness of a country, including the composition of such foreign exposures. Standard criteria and thresholds to test external debt sustainability are also discussed.

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