Gabriel QuirósDG-StatisticsEuropean Central Bank

Fundamentals of the euro area balance of payments and international investment position

Joint ECB NBRM Seminar on StatisticsSkopje, 3 October 2013

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Overview

• Basic concepts

• Method of compilation of euro area aggregates

• ECB Publication

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Basic concepts

• Transactions and positions with rest of the world– Residency concept… euro area

• Methodology based on IMF Balance of payments Manual (BPM5)… move to BPM6 in June 2014

• Balance of payments– Transactions (not payments!)

•Concept: cross border, change of ownership•Time of recording: when the ownership change

•Value: transaction price • International investment position

– Outstanding amounts at market prices

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Basic concepts

• Balance of payments– Double entry system

•Each transaction is reflected in two entries (credit and debit)

•Imputed entries– Sign convention (new in BPM6)

•Net increases of assets / liabilities (+)•Net decreases of assets / liabilities (-)

– Mismatch owing to different sources: errors and omissions

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Basic concepts

• Current account– Goods– Services– Primary Income– Secondary

Income

• Capital account

• Financial account– Direct

investment– Portfolio

investment– Financial

derivatives– Other

investment– Reserve assets

• Errors and Omissions

Main accounts in the balance of payments

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Basic concepts

Relationship between balance of payments and international investment position

• Changes in i.i.p. =B.o.p. financial transactions +Changes related to exchange rates +Changes related to asset prices +Other changes (reclassifications, write-offs, etc.)

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Basic concepts

Relationship between b.o.p. and i.i.p.

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Method of compilation of euro area aggregates

• Euro area as a single economic “entity”

• Residency– Residents in euro area countries– ECB and ESM (not other EU institutions)– Importance (and complexity) of SPEs

• Transactions and positions with rest of the world (“extra euro area”) – Criterion for geographical breakdown

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Method of compilation of euro area aggregates

Euro area BOP and IIP aggregation

• In general– Euro area members compile national

BOP and IIP with a geographical breakdown (intra and extra euro area)

– Reserve assets by definition are all extra euro area (claims on non-residents of the euro area)

– Add-up extra transactions and positions– Country contributions to the aggregate

are not disclosed by the ECB

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Method of compilation of euro area aggregates

• Exception: Liabilities of portfolio investment and related income

– Difficulties to identify geographical breakdown of creditors (holders of securities)

– Deduct intra euro area assets from national liabilities

– Assumes matching of mirror data (no asymmetries!)

– Collection security-by-security and classifications with the CSDB

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Method of compilation of euro area aggregates

Basis for an accurate euro area aggregationContributions should be:• Consistent on

– methodologies and definitions– valuations– recording time– instrument and type of investment

classification• Accurate geographical breakdown• Full coverage of SPEs

– Otherwise, we accumulate errors…….

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Method of compilation of euro area aggregates

• Euro area net errors & omissions (n.e.o)= National net errors & omissions + euro area asymmetriesChart: Cumulative n.e.o. in the b.o.p. of the euro area, US, UK and Japan

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Method of compilation of euro area aggregates

• From 2007, WG-ES has worked intensively to improve the internal consistency of euro area b.o.p.

• Adjustments at euro area level (macro corrections)– Correcting for geographical allocation of loans

by non-MFIs– Grossing-up for euro area investment funds

shares held by euro area households– Use of BIS data for deposits and loans vis-à-vis

foreign banks

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Method of compilation of euro area aggregates

• Changes to national data collection and compilation methods–Transit trade treatment (services vis-à-vis non-residents)–Debtor/creditor principle –S-B-S compilation–Coverage of SPEs–Improve coverage in financial derivatives

• FDI network… –talk to the other members and share information

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ECB Publication

• Euro area balance of payments

– Monthly (7 weeks after end of period)

• Includes current account seasonally adjusted

•Monetary presentation of the balance of payments

– Quarterly geographical breakdown (4 months)

• Euro area International investment position

– Quarterly (4 months after end of period)

– Annual geographical breakdown (11 months)

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ECB publication

From 2003

• From 2006: BRIC countries + Hong Kong

From 2005

• Brazil, Russia, India, China and Hong Kong

From 2003

Quarterly b.o.p. and annual i.i.p.

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ECB Publication

• Monthly international reserves assets and foreign currency liquidity template

– Only for the Eurosystem (Central Government not covered)

• Euro area external debt

– Quarterly (4 months after end of period)

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Thanks!

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