ECON 1000 Lecture Notes - Lecture 12: Autarky, Arbitrage, Interest Rate Parity
24 Mar 2017
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Last semester looked at how trade could raise living standards. So far discussion of macro has ignored row. The chapter and next look at open economy maro. Begin looking at key macro variables for interaction with rest of world (row) Flow of goods: exports, imports and net exports. Net exports = value exports - value imports. Capital flows = buying and selling of financial assets. Net capital outflow = purchasing foreign assets by canadian residents - purchasing domestic assets by foreigners. Net exports and nco reflect imbalance in world goods and financial markets. By accounting the two must be equal: nx = nco. Identity: must hold because of the way variables defined and measured. Nx = nco because every international transaction is an exchange. Nx > 0 means a country is selling more than it buys . Uses extra foreign currency to buy foreign assets . Capital flows out, so nco >0.
