Balance of Payments and International Investment Positions

Abstract

___________________________________________________________________________ 13.1 This section will introduce the BOP and IIP statistics as important sources for economic policy and analysis. The structure of the chapter will be: (a) general issues; (b) the accounting framework (along the lines of Appendix 5 in BPM5); (c) discussion of an analytical framework that focuses on international liquidity; and (d) other possible presentations of data. A. General Issues 13.2 The manual will discuss analytical and policy areas where BOP and IIP statistics have the most relevance and use. It will explain data uses for which BOP and IIP statistics are specifically designed and those areas where users might make use of these data (such as when no better alternative data are available). 13.3 The general issues to be covered include the following: (a) The use of the IIP and BOP financial account to analyze vulnerability to external shocks in a world of increasingly mobile financial flows. The role of timely and comprehensive balance of payments statistics: market expectations and uncertainties in fundamentals. (b) The current account balance as an indicator of excess or under-spending. Temporary and cyclical deficit /surpluses on the current account, and their impact on inflation and country's terms of trade. (c) The use of BOP data for an understanding the movements in the exchange rate through analysis of the supply and demand of foreign currencies driven by the trends in the BOP components. (d) The use of BOP statistics in explaining changes in the money supply, an important indicator for the determination of monetary policy. The possibility that BOP/IIP could be used as a supplementary data source for monetary statistics under certain circumstances will be described (in particular, they can be used to adjust monetary aggregates for holdings by nonresidents of monetary instruments). CHAPTER 13 Annotated Outline – April 2004 171 (e) The use of BOP/IIP statistics in the context of analyzing globalization and its effect. The manual could usefully describe the contribution of BOP/IIP statistics and highlight the conceptual implications for national BOP, for example toll processing, transfer pricing, and provision of group-wide IT services. Reference could be made to the Manual on Globalization Indicators. (f) The role of BOP data in the money market operations of central banks. Changes in the net foreign assets of the central bank as important explanatory variables of changes in the liquidity requirement in the money market.