No full-text available
To read the full-text of this research,
you can request a copy directly from the author.
Methods explained: Balance of Payments
Abstract
Methods explained is a quarterly series of short articles explaining statistical issues and methodologies relevant to ONS and other data. As well
as defining the topic areas, the notes explain why and how these methodologies are used. Where relevant, the reader is also pointed to further
sources of information.
... An analysis of the UK's Balance of Payments suggested that positive net investment income, which indirectly feeds through to the IIP via the fi nancial account, was driven by UK stocks of foreign assets generating higher rates of return than stock of UK assets held by foreign residents (Whitaker 2006 andChamberlin 2009). The authors suggested that this was because the rate of return of direct investment income may be exaggerated by underestimating the value (book value rather than market value) of direct investment assets. ...
... The current account records international flows in trade in goods and services, international income flows and current transfers (Chamberlin 2009). Th e trade balance of goods and services is calculated by subtracting imports (debits) from exports (credits). ...
This paper describes the path of the UK's net asset position with the rest of the world. Notwithstanding that the UK has run a substantial current account deficit for over a quarter of a century, at the beginning of 2009 the net asset position was not far off balance. The paper begins by detailing recent developments in both the UK's overseas balance sheet, known as the international investment position (IIP), and the current account deficit. It examines the link between the IIP and the cumulative current account deficit over the past forty years and explains that the divergence between the two is due to other changes. The paper then introduces a model which enables a decomposition of these other changes into currency, price and other volume effects. The results are reported in terms of annual and quarterly changes before conclusions are drawn.
... Nickell (2006) describes the UK as essentially behaving like a successful venture capitalist by borrowing cheaply in short-term interest-bearing assets and lending longer-term in riskier but higher yielding direct investments. Chamberlin (2009) has also commented on this issue. The US has also experienced a similar phenomenon and various explanations for it have been suggested (see Chamberlin 2008c)-some of which may or may not apply to the UK. ...
As a measure of economic activity, gross domestic product (GDP) is a useful indicator of output and suitable for using in estimates of productivity. However, as a measure of welfare, it has several limitations. This article follows Sefton and Weale (1996, 2005) in producing an estimate of real income ‐ a corrected or adjusted version of GDP ‐ that is linked to current and future consumption possibilities. This measure of real income differs from real (money) GDP by taking account of capital consumption, net income and transfers from overseas, and uses a consumption deflator rather than a general GDP deflator so that output is valued in terms of consumption units.
In this speech, Stephen Nickell, member of the Bank's Monetary Policy Committee, discusses the recent history of the UK current account deficit. Over the past 20 years, the average annual deficit has been around 2% of GDP and shows no signs of diminishing. Indeed, the trade deficits continues to worsen and only substantial offsetting net income flows have contained the current account deficit within bounds. To understand what is going on, we need to look at the net asset position. UK foreign assets are enormous, around four times GDP. UK foreign liabilities are fractionally bigger using official statistics. But if we correct for the fact that direct investment assets and liabilities are measured at book value rather than market value, the UK net asset position remains positive. More importantly, UK assets are biased towards equity type assets and liabilities towards debt type assets. Since the returns on the former are typically greater than the returns on the latter, this explains the positive net income position. The risks to this situation are detailed in the text.
This article looks at how the United Kingdom can, surprisingly, generate net investment income from net debt. The article explores the possible linkages between the improvement in net investment income and the stability of the sterling effective exchange rate index in the face of persistent trade deficits. It identifies some risks to net investment income from shifts in relative yields and a rise in global interest rates. With the rapid increase in cross-border asset trade, particularly in financial centres such as the United Kingdom, fluctuations in asset prices have become more powerful influences on our net debt position than in the past. Capital gains can stabilise a net external debt position even in the face of ongoing trade deficits, potentially reducing the extent of any adjustment to the exchange rate.
Develops an estimate for the UK and discusses recent trends in what could be a relevant statisticGross domestic product (GDP) measuresthe volume of goods and servicesproduced by a nation. By adjusting thismeasure to reflect movements in theterms of trade, command GDP describesthe purchasing power of a nation’soutput. For an open economy such as theUK, and given recent developments in theglobal economy such as the introductionof low-cost emerging market producers,large increases in commodity prices andexchange rate volatility, it could be arelevant statistic. This article develops anestimate of command GDP for the UK anddiscusses recent trends. Economic & Labour Market Review (2008) 2, 26–29; doi:10.1057/elmr.2008.136
This paper argues that current account statistics may provide a poor indication for the real evolution of a country’s net foreign assets. This may be due to a series of factors including the mismeasurement of FDI, unreported trade of insurance or liquidity services and debt relief. Because of these problems we suggest estimating net foreign assets by capitalizing the net investment income and then estimating the current account from the changes in this stock of foreign assets. We call dark matter the difference between our measure of net foreign assets and that portrayed by official statistics. We find dark matter to be important for many countries and that it relates to FDI flows, domestic volatility, and debt relief. We also find that, once dark matter is taken into account, global net asset positions appear to be relatively stable. In particular, the exports of dark matter of the US appear to be fairly steady and large enough to keep the US net asset position stable, casting doubts on the need for a major adjustment of the dollar or a large rebalancing of the global economy. [Jointly published as Center for International Development Working Paper No. 124 and KSG Faculty Research Working Paper Series RWP06-003.]
) provides further evidence on the shift ing composition of UK output and trade including its implications for the terms of trade
- Chamberlin
Chamberlin (2008) provides further evidence on the shift ing
composition of UK output and trade including its implications
for the terms of trade.
Dark matter. Does it matterThe law and economics of globalisation
- G Chamberlin
Chamberlin G (2009) 'Dark matter. Does it matter?' in Linda Yueh (ed)
'The law and economics of globalisation', Edward Elgar
The current account and all thatThe UK international investment position
- S Nickell
Nickell S (2006) 'The current account and all that', Bank of England
Quarterly Bulletin Summer
Whitaker S (2006) 'The UK international investment position', Bank of
England Quarterly Bulletin 2006 Q3
Global imbalances or bad accounting? The missing dark matter in the wealth of nations
- G Chamberlin
Chamberlin G (2009) 'Dark matter. Does it matter?' in Linda Yueh (ed)
'The law and economics of globalisation', Edward Elgar
Hausmann R and Sturzenegger F (2006) 'Global imbalances or bad
accounting? The missing dark matter in the wealth of nations', Centre
for International Development, Harvard University, Working Paper no.
124, January