Annex 9 Estimation of intra- and extra-euro area data for fixed composition in case of enlargement
This Annex provides information on how the ECB estimates intra- and extra-euro data for the fixed composition of the euro area in case of an enlargement. Most of this text is inspired by the preparation for the euro area enlargement to the fixed composition-20 (Croatia adopting the euro), but the logic is applicable for previous and future enlargements as well.
The estimation method
The estimation process is of a sequential nature and starts with the quarterly balance of payments and international investment position datasets, for which bilateral data vis-a-vis Croatia are to be reported by all euro area(/EU) countries for series with a
Geo 4” detail. By assumption, revaluations due to exchange rate changes and other volume changes vis-a-vis Croatia are deemed to be equal to zero. Revaluations due to price changes are estimated using the stock flow reconciliation equation, meaning that all other flows are implicitly allocated to this category. The monthly data are estimated at the end of the process, using the estimated quarterly I9/J9 data as a reference.
This methodology does not ensure vertical consistency of the accounts at sector level. For example, the estimation of income for general government is disconnected from the respective financial transactions. Countries with significant national transactions vis-a-vis Croatia are highly recommended to make their own estimates. Accounting imbalances and/or data inconsistencies in the original national data (I8/J8) would not play a significant role in the estimation process. However, as the estimation process is mostly proportional, the relative size of the inconsistencies would remain the same in the estimated national data for the new composition (I9/J9).
Quarterly balance of payments and international investment position (QBOP/QIIP)
Step 1: Time series with Geo 4” detail
For all series with Geo 4” detail, the new intra-/extra-euro area breakdown for country CC” is derived by simply adding (to the intra) or subtracting (from the extra) the bilateral data vis-a-vis Croatia:
The exchange of balance of payments, international investment position statistics BPM6
euro area data for fixed composition in case of enlargement
CC.J9 = CC.J8 CC.HR
CC.I9 = CC.I8 + CC.HR
Step 2: Time series with Geo 2/3” detail
For the Geo 2/3” series bilateral data with Croatia is not available. The I9/J9 breakdown is compiled following a top-down approach (starting from the reference Geo 4” data see Step 1 above) using either a proportional estimation method based on national ‘old’ intra euro area data (I8) and mirror HR data vis-a-vis the euro area, or a naive estimation approach. Observations within the current account, capital account and the positions of the financial account are (assumed to be) strictly positive. The proportional estimation method is used in this case to estimate the I9/J9 breakdown. The estimates assure that the national structure of the intra-euro area accounts remains the same after the enlargement to Croatia. Taking direct investment income/debt instruments/other sectors/credits as an example:
CC.I9.S1P.C.D41 = CC.I9.S1.C.D4Q * (CC.I8.S1P.C.D41 ) / (CC.I8.S1.C.D4Q )
CC.J9.S1P.C.D41 = CC.J8.S1P.C.D41 (CC.I9.S1P.C.D41 CC.I8.S1P.C.D41)
Contrarily, transactions in the financial account can either be recorded positive and negative. This makes the proportional estimation approach unsuitable. Therefore, the naive estimation approach is used. Lower-level items which are only required with the Geo 2/3” detail are estimated by allocating the changes for the relevant higher-level series (Geo 4” data) to the non-zero lower-level observations. The series that are reported as zero remain untouched.
Net/balancing items
Net items (for which no credit and debit are reported, such as transactions in financial derivatives) for the new composition are practically impossible to estimate due to lack of information. We therefore evaluate at each enlargement how to adjust the net items of the euro area countries to reflect the new composition. We do this based on, among other factors, the magnitude of the net items of the joining country. For example, Croatia has always reported zero for net financial derivatives vis-a-vis the intra-euro area in the past. In this case we can just assume that data of the euro area countries vis-a-vis I9 and J9 will be the same as I8 and J8 respectively.
CC.I9.S1.F7 = CC.I8.S1.F7
CC.J9.S1.F7 = CC.J8.S1.F7
The balancing items are compiled at the end of the process following the respective accounting equations.
The exchange of balance of payments, international investment position statistics BPM6
euro area data for fixed composition in case of enlargement
Quarterly other flows (QCHVL/QCHPR/QOTHC)
By assumption, revaluations due to exchange rate changes and other volume changes vis-a-vis Croatia are deemed to be equal to zero; in other words, I9/J9 are set equal to I8/J8. This implies that euro area asymmetries will change by the amount estimated by Croatia for these other flows vis-a-vis the euro area. Revaluations due to price changes are estimated using the stock flow reconciliation equation, meaning that all other flows are implicitly allocated to this category.
Monthly balance of payments (MBOP)
The monthly credit/asset and debit/liability data are estimated using monthly to quarterly proportions of I8/J8 data of the newly estimated quarterly I9/J9 data if the corresponding monthly data records non-zero observations with the same sign (i.e. all 3 months record positive values or all 3 months record negative values).
An example of the proportional estimation is given below:
Jan.CC.J9 = (Jan.CC.J8 / Q1.CC.J8) * Q1.CC.J9
When not all monthly observations within quarter have the same sign, a proportional allocation could result in estimations that can deviate significantly and inaccurately from the expected values.
Instead, when not all the monthly observations within a quarter have the same sign, a naive method is used to estimate the observations pertaining to the new composition of the euro area. This means that the difference between the newly estimated quarterly data and the quarterly data prior to the enlargement is evenly distributed among the months that have none-zero observations.
The exchange of balance of payments, international investment position statistics BPM6
euro area data for fixed composition in case of enlargement
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For specific terminology please refer to the ECB glossary(available in English only).
PDF ISBN 978-92-899-6090-8, ISSN 1830-3439, doi: 10.2866/68496, QB-AU-23-001-EN-N
[1] Croatia adopted the euro on 1 January 2023. For more information, see Chapter 8.4.
[2]Balance of Payments and International Investment Position Manual (sixth edition) (BMP6),International Monetary Fund, Washington, D.C., 2009.
[3] 2012/120/EU: Guideline of the European Central Bank of 9 December 2011 on the statistical reporting requirements of the European Central Bank in the field of external statistics (recast) (ECB/2011/23) (OJ L 65, 3.3.2012, p. 1).
Introduction
[4] Regulation (EC) No 184/2005 of the European Parliament and of the Council of 12 January 2005 on Community statistics concerning balance of payments, international trade in services and foreign direct investment (OJ L 35, 8.2.2005, p. 23)
[5] The release calendar is available here.
Data transmission timetable and revision policy
[6] Available here.
[7] Related links: SDMX webpage(BOP DSD), ECB Registry, Global Registry.
[8] The BOP DSD is maintained by the IMF.
[9] The DSDs and artefacts will also be made accessible in an ESCB SDMX registry, so that NCBs will not need to consult multiple registries for ESCB data exchange.
[10] The SDMX-ML/EDI message must be created before this time.
[11] The reporting of missing values accompanied by observation status M” will be carefully monitored to ensure the actual non-applicability of the specific concept at national level.
[12] Article 2.3. states that: The data shall be accompanied by readily available information on single major events and on reasons for revisions when the magnitude of the change to the data caused by such single major events or revisions is significant or on request by the ECB. Available information on single major events shall also be exchanged with other euro area NCBs in the framework of existing arrangements, for instance in the context of foreign direct investment.”
[13] Reinvested earnings (in addition to net exports of goods under merchanting), as well as their respective parent series, may also have positive or negative signs.
[14] Some exceptions may also apply to the current account, for example in the context of foreign direct investment equity where the accumulated losses (reported as negative reinvestment of earnings) are greater than the total equity (other than reinvestment of earnings), or in portfolio investment when securities received in collateral are sold. However, such situations are expected to be extremely rare.
[15] The template on international reserves contains the signs to be adopted for some codes related to positions, future and conditional flows where no official convention has been defined.
[16] Generally, for full compliance all validation rules must be fulfilled. However, breach of a sign validation does not constitute a non-compliance case as the sign rules are used to flag potentially wrong” observations.
[17] See here.
[18] In context, the geographical validation of net exports of goods under merchanting is only applicable to the rest of the world as a whole (W1”).
[19]European system of accounts: ESA 2010, Publications Office of the European Union, Luxembourg, 2013.
[20] European Union balance of payments and international investment position statistical sources and methods: B.o.p. and i.i.p. book, European Central Bank, Frankfurt am Main, November 2016.
[21] The same would apply to the exchange between two non-resident institutional units of instruments issued by residents, when information by counterpart sector would be requested.
[22]OECD Benchmark Definition of Foreign Direct Investment 2008: Fourth Edition, OECD Publishing, Paris, 2009.
[23]The Statistical Treatment of Negative Interest Rates Clarification, International Monetary Fund, Washington D.C., 2007.
[24] There could be some exceptional cases of quasi-international organisations that are profit-oriented and whose capital may even take the form of listed equities. See, for example, the African Export-Import Bank.
[25] Supranational institutions that are more profit-oriented and whose capital is held by sectors other than the central government, central bank and other international institutions may have capital in the form of tradable equities that do not fit with the proposal of this note.
[26] A clarification note on the treatment of participations in the capital of IOs and respective income was posted on the IMF website in 2020SeeTreatment of Participations in the Capital of Internal
Organisations and the Respective Income, Thirty-Second Meeting of the IMF Committee on Balance of Payments Statistics, Thimpu, Bhutam, 2019.
[27] The valuation of ESM equity will be derived by adding together paid-in capital and non-distributed profits net of losses (net income plus net other flows (revaluations) minus operating costs).
[28]Manual on Government Deficit and Debt: Implementation of ESA 2020, 2019 edition, Publications Office of the European Union, Luxembourg, 2019.
[29] This assumes enlargements in January; if they occur in other months, the reference period would be the first month after enlargement.
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