ACCUMULATION
The acquisition of fixed assets, stocks of non-durable goods, land, mineral deposits and other non-reproducible tangible assets, financial assets, patents, copyrights and other tangible assets during a period of account less the incurrence of liabilities. This is gross accumulation. Net accumulation is gross accumulation during a period reduced by the consumption of fixed capital.
BOND
A promissory note or debt security issued by a debtor, such as a government agency, local government, or a corporation, to a creditor, in a fixed amount and for a specified period. An interest bearing bond is where the debtor agrees to repay the principal amount plus a given rate of interest when the bond matures. A discounted bond is sold at a discount of its face value, such that the creditor receives a given rate of return through price appreciation upon repayment of the bond at face value.
CAPITAL GAIN OR LOSS
Increases or decreases in the value of the assets of institutional and other units which are due to changes in market prices, discovery of new mineral deposits and other natural resources, natural growth of timber, depletion mineral deposits, unforeseen obsolescence, theft, major catastrophes and other events except the purchase and sale of assets, the normal wear and tear, accidental damage, losses in tangible assets, the writing off of bad debts and other flows which are recorded in the transaction accounts.
CENTRAL GOVERNMENT
Defined as comprising all departments, offices, establishments and other bodies classified under general government, which are agencies or instrument of the central authority of a country, except separately organised social security funds irrespective of whether they are covered in, or financed through, ordinary or extraordinary budgets, or extra-budgetary funds. Central government financial balance, see notes to Annex Table 59.
CIF VALUE
The value in the market at the customs frontier of a country of her imports of merchandise, other goods, etc., including all charges for transporting and insuring the goods from the country of export to the given country but excluding the cost of unloading from the ship, aircraft, etc., unless it is borne by the carrier.
COMPENSATION OF EMPLOYEES
All payments by resident producers of wages and salaries to their employees, in kind and in cash, and of contributions, paid or imputed, in respect of their employees to social security schemes and to private pension, family allowance, casualty insurance, life insurance and similar schemes.
CONSUMPTION OF FIXED CAPITAL
The value of the reproducible fixed assets, at current replacement cost, that is used up as a result of normal wear and tear, foreseen obsolescence and the normal rate of accidental damage. Unforeseen obsolescence, main catastrophes and the depletion of natural resources are not taken into account, and roads, dams and other forms of construction other than structures of the producers of government services are also excluded.
ECONOMIC AND MONETARY UNION
The third stage of European economic and monetary union came into effect 1 January 1999, with the launch of the euro. Eleven countries participate from the start: Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, Netherlands, Portugal, Spain. On 1 January 2001, Greece joined.
EURO AREA
The 16 EU countries that by 2009 have adopted the Euro (Austria, Belgium, Cyprus, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, Netherlands, Portugal, Slovakia, Slovenia and Spain).
EU
European Union. Comprises 25 countries: Austria, Belgium, Cyprus, the Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Poland, Portugal, Slovakia, Slovenia, Spain, Sweden, and the United Kingdom.
FOREIGN DIRECT INVESTMENT
A foreign investment is classified as a direct investment if the foreign investor holds at least 10 per cent of the ordinary shares or voting rights in an enterprise and exerts some influence over its management. There are some limitations with this measure, which are related to the concept and the definition. First, direct investment flows do not include investment via the host country’s capital market or via other financial sources which do not pass through the investor country. Second, a number of foreign investors may hold a majority stake in some companies, although each may own less than 10 per cent of ordinary shares. These investments may not be counted, and it will then be considered that the companies are controlled by nationals of the country concerned. And capital flows via holding companies may artificially inflate investment flows when this capital simply enters and leaves a country. Concerning the definition, some countries adopt a threshold different from 10 per cent for distinguishing foreign direct and portfolio investment. Comparisons of data between countries can be misleading since data collection is based on different accounting practices.
HEDGE FUND
A pooled investment vehicle that is privately organised and is administered by professional investment managers. It is different from another pooled investment fund, the mutual fund, in that access is available only to wealthy individuals and institutional managers. Moreover, hedge funds are able to sell securities short and buy securities on leverage, which is consistent with their typically short-term and high risk oriented investment strategy, based primarily on the active use of derivatives and short positions. US hedge funds are exempt from Securities and Exchange Commission reporting requirements, as well as from regulatory restrictions concerning leverage or trading strategies.
IMPORT COVERAGE RATIO
The share (or percentage) of a country's own imports that is subject to a particular non tariff barrier, or any one of a specified group of non tariff barriers. They are calculated by attaching actual values to bilateral trade flows between various exporters and the importing country. The import coverage ratio suffers from the drawback that those products facing very restrictive non-tariff barriers enter the calculation with low weights. A further drawback of the ratio is that, in common with the frequency ratio, it captures the effects of relaxation of NTBs only insofar as such measures are completely eliminated. In situations where NTBs are not eliminated, the import coverage ratio may even give perverse results, which is not the case with the frequency ratio.
MONETARY AGGREGATES
Measures of the stock of money in circulation outside the banking system. Because of the lack of clarity concerning the concept of money there are various statistical definitions of the money stock. As a general rule, narrow definitions include only the currency in circulation plus sight deposits held by domestic non-banks, while broad definitions additionally include time deposits as well as savings deposits at short notice held by domestic non-banks. Not all countries publish the same types of aggregates, and, even when aggregates have the same name (e.g. M1, M3, etc.) their asset composition often differs significantly. In the euro area, monetary aggregates definitions are based on harmonised definitions of the issuing and holding sectors and the financial sectors' liabilities. When the monetary policy strategy includes elements of monetary aggregate targeting, the choice of the definition of the targeted aggregate is guided mainly by two considerations. The aggregate should be sufficiently sensitive to interest rate changes for the central bank to be able to control it and display a stable relationship over time to the movement of the overall price level.
MONETARY CONDITIONS
Assuming that both interest rates and the exchange rate are relevant indicators for the stance of monetary policy, monetary conditions can be captured by an index combining those indicators according to their relative importance for final demand. A monetary conditions index (MCI) was first introduced by the Bank of Canada. It is commonly calculated as weighted average of a short-term interest rate and an effective (i.e. trade-weighted) exchange rate, were both components are expressed as deviations from their values in a base year (the exchange rate deviation in logarithmic terms, with a positive deviation expressing a depreciation of the national currency). Thus upward movements of an MCI reflect a relatively thighter, and downward movements a relatively easier monetary stance. Many versions of the MCI use real instead of nominal interest and exchange rates. Weights are usually derived from estimated long-run interest and exchange rate elasticities, or simply by applying a weight of one to the interest rate, and a measure of trade openness (e.g. exports-to-GDP ratio) to the exchange rate. MCI measures have also been extended to include yield spreads and/or share prices ("Financial Conditions Index").
NATIONAL ACCOUNTS
A coherent, consistent and integrated set of macroeconomic accounts, balance sheets and tables based on a set of internationally agreed concepts, definitions, classifications and accounting rules, the rationale behind national accounts is summarised in the following three paragraphs, which have been reproduced from the Introduction to SNA93. See also technical note by the OECD Statistics Directorate on the OECD web site. For a description of the data used in individual countries see note to Annex Table 1.
National accounts provide a comprehensive accounting framework within which economic data can be compiled and presented in a format that is designed for purposes of economic analysis, decision-taking and policy-making. The accounts themselves present in a condensed way a great mass of detailed information, organized according to economic principles and perceptions, about the working of an economy. They provide a comprehensive and detailed record of the complex economic activities taking place within an economy and of the interaction between the different economic agents, and groups of agents, that takes place on markets or elsewhere. In practice the accounts are compiled for a succession of time periods, thus providing a continuing flow of information that is indispensable for the monitoring, analysis and evaluation of the performance of an economy over time. The accounts provides information not only about economic activities, but also about the levels of an economy's productive assets and the wealth of its inhabitants at particular points of time. Finally, they also include an external account that displays the links between an economy and the rest of the world.
The accounts may be implemented at different levels of aggregation: at the level of individual economic agents, or institutional units; for groups of such units, or institutional sectors; or at the level of the total economy. In order to understand the workings of the economy, it is essential to be able to observe and analyse the economic interactions taking place between the different sectors of the economy. Certain key aggregate statistics, such as gross domestic product (GDP), that are widely used as indicators of economic activity at the level of the total economy, are defined within the System, but the calculation of such aggregates has long ceased to be the primary purpose for compiling the accounts. For an explanation of how GDP is constructed see note to Annex Table 2.
The System is built around a sequence of interconnected flow accounts linked to different types of economic activity taking place within a given period of time, together with balance sheets that record the values of the stocks of assets and liabilities held by institutional units or sectors at the beginning and end of the period. Each flow account relates to a particular kind of activity such as production, or the generation, distribution, redistribution or use of income. Each account is balanced by introducing a balancing item defined residually as the difference between the total resources and uses recorded on the two sides of the account. The balancing item from one account is carried forward as the first item in the following account, thereby making the sequence of accounts an articulated whole. The balancing items typically encapsulate the net result of the activities covered by the accounts in question and are therefore economic constructs of considerable interest and analytical significance - for example, value added, disposable income and saving. There is also a strong link between the flow accounts and the balance sheets, as all the changes occurring over time that affect the assets or liabilities held by institutional units or sectors are systematically recorded in one or another of the flow accounts. The closing balance sheet is fully determined by the opening balance sheet and the transactions or other flows recorded in the sequence of accounts.
NON-TARIFF BARRIERS
All barriers to trade that are not tariffs. Examples of these include countervailing and anti-dumping duties, "voluntary" export restraints, subsidies which sustain in operation loss making enterprises, technical barriers to trade, and obstacles to the establishment and provision of services. Moreover, the term is often used to include certain domestic measures, such as restraints on distribution and non-competitive practices that can also distort trade in the same way as border measures do. Some of these instruments, in particular technical regulations, minimum standards and certification systems regarding health and consumer safety do not ipso facto constitute barriers to trade, as they are generally employed to meet legitimate policy goals. However, there is a perception that, in some circumstances these sorts of policy instruments are being misused.
OPEN MARKET OPERATION
The sale or purchase of mostly government securities, in a market open to private investors, by a central bank. Sales in the open market are an integral part of monetary policy, allowing the central bank to manage the volume of money and credit in the economy. For instance, if the money supply rises due to an unanticipated in-flow of foreign currency, the central bank may act to counter the rise in foreign exchange reserves by selling government securities; an action referred to as (monetary) sterilisation.
PRODUCER SUPPORT ESTIMATES - PSE
An indicator of the annual monetary value of gross transfers from consumers and taxpayers to support agricultural producers, measured at farm gate level, arising from policy measures, regardless of their nature, objectives or impacts on farm production or income. The PSE measures support arising from policies targeted to agriculture relative to a situation without such policies, i.e. when producers are subject only to general policies (including economic, social, environmental and tax policies) of the country. The PSE is a gross notion implying that any costs associated with those policies and incurred by individual producers are not deducted. It is also a nominal assistance notion meaning that increased costs associated with import duties on inputs are not deducted. But it is an indicator net of producer contributions to help finance the policy measure (e.g. producer levies) providing a given transfer to producers. The PSE includes implicit and explicit payments. The percentage PSE is the ratio of the PSE to the value of total gross farm receipts, measured by the value of total production (at farm gate prices), plus budgetary support.
PURCHASING POWER PARITIES - PPPS
International comparisons of GDP depend on two conditions being met. The first is that the basis of calculating GDP is consistent for the countries under comparison. The second is that the unit in which GDP is expressed, the numeraire, is comparable. The simplest way of comparing the GDP of two different countries is to convert each amount (or, even better, the amount per capita) to a common currency using official exchange rates. However, this is widely recognised as being inadequate because market exchange rates do not adequately reflect the comparative purchasing power of local currencies in their own markets. The concept of the purchasing power parity (PPP) was developed to provide an alternative conversion factor for GDP, so that internationally comparable price and volume comparisons of GDP could be established. PPPs are the rates of currency conversion which equalise the purchasing power of different currencies. This means that a given sum of money, when converted into different currencies at the PPP rates, will buy the same basket of goods and services in all countries. In other words, PPPs are the rates of currency conversion which eliminate the differences in price levels between countries. Thus, when expenditures on GDP for different countries are converted into a common currency by means of PPPs, they are expressed, in effect, at the same set of international prices so that comparisons between countries reflect only differences in the volume of goods and services purchased. Expenditures converted to a common currency using exchange rates, on the other hand, reflect not only differences in the volumes purchased in the different countries, but also the differences in price levels between the countries. Exchange rates do not reflect the relative purchasing powers of different currencies and are not, therefore, the appropriate currency conversion rates with which to make international comparisons of volume. Expenditures on GDP converted at exchange rates remain essentially nominal measures; the same expenditures converted using PPPs are real measures.
The PPPs produced by the OECD do not refer solely to domestically-produced tradable goods and services valued at export prices. Instead, they have been calculated specifically for statistical purposes in order to enable international price and volume comparisons to be made for expenditure on GDP and its components. As such, they refer to the entire range of final goods and services which make up GDP as a whole including many items, such as construction and government services, which are not traded. Moreover, they are valued at domestic market prices and are calculated using expenditure weights that primarily reflect domestic demand. Both real and nominal expenditures are presented in OECD publications. The real values are expressed at international prices in US dollars; the nominal values are expressed at national prices in both US dollars and national currency (the choice of the US dollar as the common unit of currency is purely a matter of convention which has no effect on the relative positions of countries.)
QUARTERLY GROWTH RATE
Growth of a variable over previous quarter, at an annual rate. The calculation and presentation of growth rate information, particularly that relating to quarterly series, is sometimes a source of confusion and the following paragraphs aim at clarifying the measurement principles involved. Annual growth rates are commonly defined as the percentage change in a variable between two consecutive years. Similarly, quarterly growth rates can be calculated as the percentage changes between two consecutive quarters. It is often convenient, however, to convert such measures of quarterly growth into a form which is more readily comparable with annual growth figures, i.e. to express them at annual rates. Mathematically, this is done by raising to the power of four the quarterly growth factor (which is obtained by dividing the current value of a variable by its value in the preceding quarter), subtracting unity and multiplying by 100. In effect, the quarterly growth rate is compounded over four quarters to provide the annual rate of growth which would result from the continuation of the quarterly rate of growth over a one-year period. In terms of simple algebra, if a variable has a value of Xt in one quarter and Xt+1 in the next, the formula for the quarterly rate of growth for period t+1, expressed at an annual rate, is given by: g (t + 1) = [(X(t + 1) /X(t))4 - 1.0]*100 For example, based on quarterly GDP numbers for country X you can calculate the following growth rates.
The OECD Secretariat has also begun to present growth rates between the final quarters of successive years, commonly referred to as the growth rate during the year in question. Also, growth rates may be measured in relation to the corresponding month, quarter or semester of the previous year and are commonly used and referred to as "year-on-year" growth rates.
STABILITY AND GROWTH PACT
The Pact is the framework, adopted in 1997, for the co-ordination of fiscal policy across EU States. It stipulates that Member States adhere to the medium-term objective of budgetary positions "close to balance or in surplus". This is judged to be necessary to allow automatic stabilisers to work during a normal downturn without taking the budget deficit above the 3 per cent of GDP limit. A general government deficit exceeding this threshold can lead to pecuniary penalties unless the European Council judges it to be temporary and there are special circumstances. Every year, each Member State draws up a stability (for the euro area Members) or convergence (for the others) programme setting out the key elements of fiscal policy over the next few years. The programme is submitted to the Commission and, based on the latter's recommendations, adopted by the European Council with a published opinion.
TECHNICAL BARRIERS TO TRADE
Technical regulations, minimum standards and certification systems for health, safety and environmental protection and to enhance the availability of information about products, which may result in the erection of technical barriers to trade (TBTs). TBTs are mainly caused by differential application of technical regulations, standards and certification systems between domestic and foreign suppliers, although the fact that such regulations, standards and certification systems differ across countries may in itself be a barrier to trade. In practice it is difficult to evaluate the extent to which standards are applied or enforced differentially.
WORLD TRADE ORGANISATION - WTO
International organisation dealing with the global rules of trade between nations. Its main function is to ensure that trade flows as smoothly, predictably and freely as possible. The system ' known as the multilateral trading system ' is centered around WTO agreements, negotiated and signed by a large majority of the world's trading nations, and ratified in their parliaments. These agreements are the legal ground-rules for international commerce. Essentially, they are contracts, guaranteeing member countries important trade rights. They also bind governments to keep their trade policies within agreed limits. The agreements were negotiated and signed by governments. But their purpose is to help producers of goods and services, exporters, and importers conduct their business.
