Balance of Payments Analysis Basic Concepts. Composition of the BP Major sub-balances: Major sub-balances: Trade of goods Trade of goods Trade of services.

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Balance of Payments Analysis Basic Concepts

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

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

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

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

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

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