How to Read Flow of Funds Accounts : continued
Reading Flow Sheets
Creating Your Command Center for Capital Flow Research
With the instrument definition page on your screen, you now have organized, centralized access to data needed for flow of funds accounts analysis on that market segment.
By using a tabbed browser, such as Firefox or Opera, you can keep many tables and sources open at the same time.
This is helpful when making multi-source comparisons.
From your command center, you can switch from source to source, gathering data from many sites, using the pre-selected external link as specialized bookmarks for flow of funds research.
The image above shows a color-coded instrument table that is open on a Firefox browser with tabs to other tables and sources:
The Instrument Table
With the instrument table open on your browser, you'll see five dark blue tabs in the upper left :
- Home: A link back to the home page.
- Definition: The official Federal Reserve definition for this table.
- Links: Off-site resources related to this table, particularly sites that may have more recent statistics than those published by the Federal Reserve in the national flow of funds accounts.
- Quarter Summary : A synthesis of the major flows for this table over the most recent quarter.
- Help: Color Coding : A quick explanation of the colors used to facilitate comprehension of this table.
Now that you know how to locate the instrument table that you need to start your analysis, the next thing is to know how to interpret the table.
The rest of this lesson focuses on the basics of reading flow of fund accounts.
Four Kinds of Tables
There are four kinds of flow of funds tables that we use in Capital Flow Analysis:
- Instrument Flow Tables;
- Instrument Level Tables:
- Sector Flow Tables; and
- Sector Level Tables.
Level Tables
Level tables are similar to balance sheets in accounting.
- For sectors, level tables show the value of assets and liabilities on a certain date.
- For instruments, level tables show amounts issued and still outstanding by class of issuer, and amounts owned by the various sectors that purchase securities.
Flow Tables
Flow tables are similar to sources and uses of funds reports in accounting.
- For sectors, flow tables show net difference in the balances of assets and liabilities over certain periods.
- For instruments, flow tables show the net volume of securities issued or purchased over certain periods.
How Tables Are Laid Out
The Federal Reserve makes up its own rules on how to present national flow accounts. This is logical and proper since the system was invented by Morris Copeland, a Federal Reserve economist, in the 1930s and 1940s.
National flow of funds accounts of the United States are, by far, the most complete and useful of any country.
There is a System of National Accounts (SNA), published jointly by the United Nations, the Commission of the European Communities, the International Monetary Fund, the Organisation for Economic Co-operation and Development, and the World Bank in 1993.
However, this standard has been influenced by Keynesian economists and the capabilities of member countries to actually gather and compile the data.
Consequently, flow of funds accounts published to meet SNA standards tend to be more succinct, more tailored to the interests of macro economists, and less useful for Capital Flow Analysis than the Federal Reserve National Flow of Funds Accounts of the United States.
"Social accounting" (which includes flow of funds accounting) was dropped from the field classification of the American Economic Association in 1974.
Unlike financial accountancy, only governments have the resources to compile flow of funds accounts.
There has been much less written about techniques of flow of funds accounting than about financial accounting.
Over the years, the flow of funds accounts have evolved, for better or worse, with turnover in Federal Reserve staff, budgetary constraints, and changes in market and political views.
Consequently, in the Federal Reserve accounts, each instrument or sector table has quirks and peculiarities.
Especially irksome is the way NIPA data have been grafted into the tables.
The cost and resources needed to gather and compile this data is enormous, far beyond capabilities of the private sector.
We should be thankful that the Federal Reserve compiles this data at all.
Before proceeding, check your progress:
Self-Test
The inventor of national flow of funds accounts was:
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How many kinds of flow of funds tables are there?
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Which one is not true?
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How to Read Flow of Funds Accounts : continued >
