Abstract
This study explores the macroeconomic determinants of the ‘net errors and omissions’ behaviour in balance of payment accounts. Two empirical equations are being estimated as suggested by the balance of payments constraint, and income-expenditure approach, respectively. This study finds that GDP, interest rate, and exchange rate are the important factors explaining the Australian ‘net errors and omissions’. Causality tests have recognized the possible transmission channels. This study can be considered a new perspective in this topic and reference for further research.
Highlights
News of new balance of payments (BoP henceafter) statistics announcement and released by the local government authorities is crucial for practitioners and academic economists for analyzing and forecasting the directions of a country’s economic performance as well as to formulate economic policy
Small values of errors & omissions’ (EO) do not indicate that the BoP statistics are reliable, and vice versa; as small EO values are compatible with very large absolute errors and omissions on each side of the ledger; and it [small EO] can suddenly explode without any change in statistical procedure or economic behaviour (Fausten & Brooks, 1996, p. 1304)
The results provide empirical support that balancing item of the country’s balance of payments accounts are sustainable
Summary
News of new balance of payments (BoP henceafter) statistics announcement and released by the local government authorities is crucial for practitioners (i.e. investors and policy makers) and academic economists for analyzing and forecasting the directions of a country’s economic performance as well as to formulate economic policy. As documented by (Fausten & Brooks), “ ...balance of payments statistics, and their reliability, are matters of public interest Their importance in the public and policy arena is, ipso facto, transmitted to the balancing item because that statistic is generated by the factual and systemic imperfections, the errors and omissions, that permeate the balance of payments statistics’ Small values of EO do not indicate that the BoP statistics are reliable, and vice versa; as small EO values are compatible with very large absolute errors and omissions on each side of the ledger; and it [small EO] can suddenly explode without any change in statistical procedure or economic behaviour Small values of EO do not indicate that the BoP statistics are reliable, and vice versa; as small EO values are compatible with very large absolute errors and omissions on each side of the ledger; and it [small EO] can suddenly explode without any change in statistical procedure or economic behaviour (Fausten & Brooks, 1996, p. 1304)
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