They provide valuable insights into income, consumption, and investment trends, which can inform decision-making by economists, policymakers, and investors. They can be useful for:
The current account includes items like income (e.g., wages, dividends, interest) and consumption (e.g., household spending). By studying this, one can understand how changes in income and consumption patterns affect the economy. For example, a sudden drop in household spending could signal a lack of consumer confidence, potentially indicating an upcoming recession.
For policymakers, understanding the current and capital accounts can help guide decisions on tax, monetary, and fiscal policies. If households' income is declining while their consumption remains steady, for instance, it could suggest households are taking on more debt, which might require policy interventions.
The capital account includes items like capital transfers and the acquisition/disposal of non-financial assets. By studying this, one can understand the rate of capital formation in the economy. If non-financial corporations are investing heavily in non-financial assets, it could suggest they are expecting future growth.
In aggregate, these accounts can provide a snapshot of the economy's health. If income is growing and consumption is steady, it may suggest a healthy economy.
For the government sector, understanding its financial accounts can help guide fiscal policy. For instance, if the sector's liabilities (government debt) are growing faster than its assets, it may signal a need for fiscal consolidation.
Regulators use these accounts to understand how different sectors are exposed to financial risks, which can inform the development of macroprudential policies aimed at reducing systemic risk and promoting financial stability.
| Main output | Explanation | |
|---|---|---|
| Production account | Net value added | It’s the value added from a sector, it’s the same concept of gdp but for sector. In the case of households it derives from value created by unincoporated enterprise and value from renting house (reduced by cost of mainteinance) |
| Income account | Operating surplus and mixed income | Shows how the value added is distributed between remuneration of the labour and capital factors of production |
| Primary income account | Balance of primary income | “Primary” income means the income generated by a production process itself or by a closely related process. In the case of households compensation of employees, in resources, rapresent the compensation received by employees of all firms |
| Secondary income account | Disposable income | “Secondary” income consists of money transferred to, or from, sector without being related to a productive activity. It traces the various transfers that take place subsequent to the distribution of primary income, with these transfers mainly aimed at correcting social inequalities. One could equally call this the “redistribution account” |
| Use of income account | Saving | Saving derives from the expenditure that take place, mainly in household or general government sector (purchase of daily goods and services) |
| Capital account | Net lending / net borrowing | It depends from the capability of a sector to save and become a lender for other sectors (such as household, generally) or to have to borrow (such as general government). Main items of capital account is investment made by a sector (gross fixed capital formation) |