Episode 130: Introducing Scotland's sectoral balances

Описание: The concept of sectoral balances, developed by British economist Wynne Godley, has long been a well-established tool in macroeconomic analysis. Sectoral balances provide a vital framework for understanding the interconnected dynamics of modern economies. The St. Louis Fed tracks the US sectoral balances. The private bank J.P. Morgan used sectoral balances to ask, “Is the deficit threat being overhyped?”. The European Central Bank) used the approach to analyse imbalances in the euro area.

At their core, sectoral balances reflect a simple but fundamental principle: one sector's surplus must necessarily be matched by a deficit in another, as all financial transactions balance across the economy. This concept, rooted in the rules of accounting, divides the economy into three sectors: the private sector (households and businesses), the government sector (which normally includes the issuer of currency, regional and local government, in Scotland’s case Westminster, Holyrood and Local Authorities), and the foreign sector (representing trade and financial transactions with the rest of the world). By examining the financial flows between these sectors, sectoral balances offer a comprehensive view of how economic activity is distributed and sustained. Insights from sectoral balances underscore the crucial interplay between government deficits and private sector balances, providing a powerful lens to assess the impact of fiscal policy decisions and trade dynamics on a nation's economy.

In this episode, we introduce, for the first time, Scotland’s sectoral balances.