BOP Notes. Philip R. Lane Trinity College Dublin. November Lane () BOP Accounts November / 13

Transcription

1 BOP Notes Philip R. Lane Trinity College Dublin November 2010 Lane () BOP Accounts November / 13

2 Introduction BOP/IIP captures cross-border ows/stocks between residents and non-residents Unit is resident if it carries out economic activity in the territory either inde nitely or for a xed but long period of time (more than one year) Lane () BOP Accounts November / 13

3 The Current Account The current account can be written as CA t = TBt GS + TRANt C + NETLABINC t + NETINVINC t (1) CA t = TBt GST + NETINVINC t (2) Net investment income is NETINVINC t = INVINC_CREDIT t INVINC_DEBIT t (3) NETINVINC t = YLD At A t 1 YLD Lt L t 1 (4) where YLD is the yield rate (interest payments, dividends, pro ts on FDI), A is the stock of foreign assets and L is the stock of foreign liabilities at the end of period t 1. Lane () BOP Accounts November / 13

4 The Financial Account The nancial account can be written as FIN t = FLOW At + FLOW DERIVt FLOW Lt (5) FLOW At = FLOW FDI At + FLOW PEQ At + FLOW PD At (6) +FLOWAt OD + FLOWAt RES (7) FLOW DERIVt = Net acquisitions of derivative positions FLOW Lt = FLOW FDI Lt + FLOW PEQ Lt + FLOWLt PD (8) +FLOWLt OD + FLOW L (9) "Rate of Flow" RFLOW Xit = FLOW Xit X it 1 (10) Lane () BOP Accounts November / 13

5 The Capital Account The capital account can be written as Examples of capital transfers KAP t = KTRAN At KTRAN Lt (11) Some types of foreign aid Transfer of ownership of non- nancial assets (land, mines, equipment) Assets of migrants Debt forgiveness Lane () BOP Accounts November / 13

6 The Balance of Payments The balance of payments must add to zero CA t [FIN t + KAP t ] + EO t = 0 (12) where EO t is the balancing errors and omissions term (statistical discrepancy) Lane () BOP Accounts November / 13

7 The International Investment Position Foreign Assets are Foreign Liabilities are A t = FDI At + PEQ At + PD At + OD At + RES At (13) L t = FDI Lt + PEQ Lt + PD Lt + OD Lt (14) Net value of derivative positions is DERIV t Net international investment position (NIIP or NFA) NIIP t = A t + DERIV t L t (15) Lane () BOP Accounts November / 13

8 Stock-Flow Dynamics A stock position X evolves according to X t = X t 1 + FLOW Xt + VAL Xt + OTH Xt (16) The valuation term VAL Xt includes changes in market prices, exchange rates and write-downs The residual term OTH Xt re ects gaps between survey data and ow data, gaps between market value and book value (FDI) and data revisions The rate of capital gain is a useful concept The overall rate of return is KGR Xt = VAL Xt X t 1 (17) ROR Xt = INVINC Xt + VAL Xt X t 1 (18) Lane () BOP Accounts November / 13

9 NIIP Dynamics The NIIP evolves according to or NIIP t NIIP t 1 = (A t A t 1 ) (L t L t 1 ) (19) NIIP t NIIP t 1 = NETFLOW t + NETVAL t (20) since the net ow just equals the current account (assuming KAP = EO = 0) which can be written as NIIP t NIIP t 1 = CA t + NETVAL t (21) NIIP t NIIIP t 1 = TB GST t + NETINVINC t + NETVAL t (22) NIIP t NIIIP t 1 = TB GST t + NETRET t (23) Lane () BOP Accounts November / 13

10 Indicating ratios to GDP with lower-case letters, we can write dynamics of NIIP as follows b t b t 1 = bgst t + yld t A A t 1 yldt L L t 1 + KG t (24) Y t Y t g t + π t (1 + g t )(1 + π t ) b t 1 + ε t (25) where b t is NIIP-GDP ratio, g t is the growth rate of real GDP, π t is the in ation rate, and the term ε t includes the ratio of capital transfers and errors and omissions to GDP. Sum of: (i) trade balance; (ii) investment income; (iii) capital gains; (iv) growth e ect; (v) residual Lane () BOP Accounts November / 13

11 More on Dynamics De ne gross real rate of return on foreign assets We can then write or 1 + r A t = (1 + yld t + kg A t ) (1 + π t ) b t b t 1 = bgst t + r L t g t 1 + g t b t 1 + r A t r L t 1 + g t a t 1 + ε t b t b t 1 = bgst t + r W t g t 1 + g t b t 1 + (r A t r W t ) 1 + g t a t 1 (r L t r W t ) 1 + g t l t 1 + ε t Net position matters via second term Gross positions matter via third and fourth terms Composition matters Lane () BOP Accounts November / 13

12 Valuation Issues Mark-to-market for portfolio equity and portfolio debt Non-portfolio debt: FDI: as valued by banks book value versus market value Equity component; Debt component Book value of equity: cumulative equity ows [Retained earnings counted in ows] Market value: stock prices for listed a liates; market price of parent; indexation of acquisition price; market index for destination country Quality of data on derivative positions suspect (valuation of OTC positions) Lane () BOP Accounts November / 13

13 Alternative Approaches Dark Matter : capitalise investment income to obtain stock estimates Major problem: valuation of FDI Transfer pricing: raises foreign pro ts of US rms but reduces services exports by same amount - zero impact on CA Retained earnings (US vs non-us): di erent incentives Intangibles: measuring investment in non-tangible assets Capturing o shore vehicles: SIVs etc Lane () BOP Accounts November / 13

14 Other Issues Bilateral Data Consolidated Positions Currency Exposure Lane () BOP Accounts November / 13