Financial Programming

Framework to design economic policies in order to improve the health of an economy

1. Growth (production)
2. Inflation is under control, low and stable
3. Finantial System is sound
4. Full employment
5. Stability of exchange rate

Enemies:

6. too much/little demand

7. Uncertainty
8. Government Finances not in good shape
9. Inflation and exchange rate
10. Bubble in assets

Depends on economic policies:

Fiscal
a. Government Revenues and Expeditures
Monetary and Exchange Rate
b. Quantity of money
c. Quantity of Credit
d. Interest rate
e. Exchange Rate
Structural
f. Design of Regulations
g. Institutions

On Crisis
11. Production Falls
12. Unemployment increases
13. Banks Fail
14. Assets lose their value

3 steps

1) Analysis and Diagnose the current state of the economy

a. Macroeconomic Accounts
i. Real
ii. External
iii. Government
iv. Monetary
b. Government Accounts
c. Banks Accounts
d. Transactions with other coutries
2) Projection if policies remain the same
3) Design of policies
e. Set objectives (3 to 5 years)
f. Then, determine the changes in economic policies

Framework
i. Accounts for the mais sectors
1. Real
a. Producing and Consuming units
b. Products and services
c. National Income and Product Accounts
i. Production and use of goods and services
2. External
 a. The rest of the world
b. Transactions with other countries
c. Balance of payments and International Investment Position
3. Government
a. Taxes
b. Expenses
c. Government Sector Accounts
4. Monetary
a. Banks
b. Credit
ii. Provided by
1. Accounting Identities
a. Flows (transactions) or postions (claims and liabilities) involving
i. Agents in one sector and agents in other sector
ii. Agents of a sub-sector and the broader sector should be reflected equally in the
respective accounts
b. The sum of certains aggregates should be the same and the sum of other aggregates
2. Behavioral relationships
a. Link the development of variables of different accounts in an economic meaningful way
15. used by policymakers
i. IMF
ii. Multilateral Organizations

Common Concepts

1. Sectors
2. Residence
i. economy to which a particular agent belongs
ii. economic interest, not citizenship
iii. has to be in the economy for more than 1 year
3. Stock, Flows and Transactions
i. Stocks
1. level of assets and liabilities of an agent
ii. Flows
1. Changes in stocks during a period of time
2. can happen because of
a. transactions
b. other flows
i. changes in price
ii. physical losses
iii. forgiveness of a liability
iii. Transactions
1. economic interactions
2. two different agents / institutions
4. Cash accounting
i. Macroeconomic Accounting
ii. transaction are attributed to the period when payment takes place
5. Accrual Accounting
i. transactions are attributed to the period when they take place
ii. then property changes
6. Consolidation of accounts
i. merging accounts fo two or more agents from the same sector of the economy
ii. eliminate transactions between different units within the same sector