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    Bop Lane

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    kkaniraj
    1) The document introduces balance of payments (BOP) and international investment position (IIP) accounts, which track cross-border flows and stocks between domestic residents and non-residents. 2) Key components of the BOP are defined, including the current account, financial account, and capital account. Equations show how these components are calculated. 3) Stocks such as foreign assets and liabilities are also defined. The net IIP is the difference between foreign assets and liabilities.

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    Attribution Non-Commercial (BY-NC)
    Download as PDF, TXT or read online from Scribd

    Bop Lane

    Uploaded by

    kkaniraj
    58 views14 pages
    1) The document introduces balance of payments (BOP) and international investment position (IIP) accounts, which track cross-border flows and stocks between domestic residents and non-residents. 2) Key components of the BOP are defined, including the current account, financial account, and capital account. Equations show how these components are calculated. 3) Stocks such as foreign assets and liabilities are also defined. The net IIP is the difference between foreign assets and liabilities.

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    1) The document introduces balance of payments (BOP) and international investment position (IIP) accounts, which track cross-border flows and stocks between domestic residents and non-residents. 2) Key components of the BOP are defined, including the current account, financial account, and capital account. Equations show how these components are calculated. 3) Stocks such as foreign assets and liabilities are also defined. The net IIP is the difference between foreign assets and liabilities.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    58 views14 pages

    Bop Lane

    Uploaded by

    kkaniraj
    1) The document introduces balance of payments (BOP) and international investment position (IIP) accounts, which track cross-border flows and stocks between domestic residents and non-residents. 2) Key components of the BOP are defined, including the current account, financial account, and capital account. Equations show how these components are calculated. 3) Stocks such as foreign assets and liabilities are also defined. The net IIP is the difference between foreign assets and liabilities.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 14

    BOP Notes

    Philip R. Lane Trinity College Dublin

    November 2010

    Lane ()

    BOP Accounts

    November 2010

    1 / 13

    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 indenitely or for a xed but long period of time (more than one year)

    Lane ()

    BOP Accounts

    November 2010

    2 / 13

    The Current Account


    The current account can be written as

    CAt CAt

    = TBtGS + TRANtC + NETLABINCt + NETINVINCt = TBtGST + NETINVINCt

    (1) (2)

    Net investment income is NETINVINCt NETINVINCt

    = INVINC _CREDITt INVINC _DEBITt (3) = YLDAt At 1 YLDLt Lt 1 (4)

    where YLD is the yield rate (interest payments, dividends, prots 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 2010 3 / 13

    The Financial Account


    The nancial account can be written as FINt FLOWAt FLOWDERIVt FLOWLt

    = FLOWAt + FLOWDERIVt FLOWLt PEQ PD FDI = FLOWAt + FLOWAt + FLOWAt


    OD +FLOWAt RES + FLOWAt

    (5) (6) (7)

    = Net acquisitions of derivative positions PEQ FDI PD = FLOWLt + FLOWLt + FLOWLt (8)
    OD +FLOWLt + FLOWL

    (9)

    "Rate of Flow" RFLOWXit =

    FLOWXit Xit 1

    (10)

    Lane ()

    BOP Accounts

    November 2010

    4 / 13

    The Capital Account

    The capital account can be written as KAPt = KTRANAt Examples of capital transfers
    Some types of foreign aid Transfer of ownership of non-nancial assets (land, mines, equipment) Assets of migrants Debt forgiveness

    KTRANLt

    (11)

    Lane ()

    BOP Accounts

    November 2010

    5 / 13

    The Balance of Payments

    The balance of payments must add to zero CAt

    [FINt + KAPt ] + EOt = 0

    (12)

    where EOt is the balancing errors and omissions term (statistical discrepancy)

    Lane ()

    BOP Accounts

    November 2010

    6 / 13

    The International Investment Position


    Foreign Assets are At = FDIAt + PEQAt + PDAt + ODAt + RESAt Foreign Liabilities are Lt = FDILt + PEQLt + PDLt + ODLt Net value of derivative positions is DERIVt Net international investment position (NIIP or NFA) NIIPt = At + DERIVt Lt (15) (14) (13)

    Lane ()

    BOP Accounts

    November 2010

    7 / 13

    Stock-Flow Dynamics
    A stock position X evolves according to Xt = Xt
    1

    + FLOWXt + VALXt + OTHXt

    (16)

    The valuation term VALXt includes changes in market prices, exchange rates and write-downs The residual term OTHXt reects 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 KGRXt = The overall rate of return is RORXt =
    Lane ()

    VALXt Xt 1

    (17)

    INVINCXt + VALXt Xt 1
    November 2010

    (18)

    BOP Accounts

    8 / 13

    NIIP Dynamics
    The NIIP evolves according to NIIPt or NIIPt NIIPt
    1

    NIIPt

    = (At

    At

    1)

    (Lt

    Lt

    1)

    (19) (20)

    = NETFLOWt + NETVALt

    since the net ow just equals the current account (assuming KAP = EO = 0) NIIPt which can be written as NIIPt NIIPt NIIIPt NIIIPt
    1 1

    NIIPt

    = CAt + NETVALt

    (21)

    = TBtGST + NETINVINCt + NETVALt (22) = TBtGST + NETRETt (23)

    Lane ()

    BOP Accounts

    November 2010

    9 / 13

    Indicating ratios to GDP with lower-case letters, we can write dynamics of NIIP as follows

    bt

    bt

    = bgstt +

    yldtA At

    yldtL Lt Yt
    1

    KGt Yt

    (24) (25)

    gt + t bt (1 + gt )(1 + t )

    + t

    where bt is NIIP-GDP ratio, gt is the growth rate of real GDP, t is the ination rate, and the term 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 eect; (v) residual
    Lane () BOP Accounts November 2010 10 / 13

    More on Dynamics
    Dene gross real rate of return on foreign assets 1 + rtA = We can then write bt or bt bt
    1

    (1 + yldt + kgtA ) (1 + t )
    rtA rtL at 1 + gt

    bt

    = bgstt +

    rtL gt bt 1 + gt

    + t

    = bgstt +

    rtW gt (r A rtW ) bt 1 + t at 1 + gt 1 + gt (rtL rtW ) lt 1 + t 1 + gt

    Net position matters via second term Gross positions matter via third and fourth terms Composition matters
    Lane () BOP Accounts November 2010 10 / 13

    Valuation Issues

    Mark-to-market for portfolio equity and portfolio debt Non-portfolio debt: as valued by banks FDI: 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 2010

    11 / 13

    Alternative Approaches

    Dark Matter: capitalise investment income to obtain stock estimates Major problem: valuation of FDI Transfer pricing: raises foreign prots of US rms but reduces services exports by same amount - zero impact on CA Retained earnings (US vs non-US): dierent incentives Intangibles: measuring investment in non-tangible assets Capturing oshore vehicles: SIVs etc

    Lane ()

    BOP Accounts

    November 2010

    12 / 13

    Other Issues

    Bilateral Data Consolidated Positions Currency Exposure

    Lane ()

    BOP Accounts

    November 2010

    13 / 13

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