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Balance of Payments Analysis

Dive into the core elements of balance of payments, including composition, trade balance, services, capital and financial account, errors and omissions, and reserve position. Learn about the fundamental principles of BP accounting.

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Balance of Payments Analysis

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Presentation Transcript

  1. Balance of Payments Analysis Basic Concepts

  2. Composition of the BP • Major sub-balances: • Trade of goods • Trade of services • Unilateral transfers • Capital in- and outflows • Errors and omissions • Reserve position

  3. The Trade Balance • Trade in goods (“visibles” • Trade in services (“invisibles”) • We will use the symbol “NX” (net exports) for this account

  4. Services • This sub-account includes items like tourism, insurance, royalties, etc. • Most importantly: the service balance also includes interest payments

  5. The Capital and Financial Account • The capital and financial account (CFA) includes the in- and outflow of capital such as direct investment, amortization payments, and credit.

  6. The international reserve position • The reserve position registers the net change of international reserves.

  7. Central Principle of BP Accounting • Monetary “Inflows” are actives (+) • Monetary “Outflows” are passives (-)

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