Whenever I write about Balance of Payments data, I mention without fail the recent rise of the Turkish UFO- unidentified financing objects-, or in the official lingo, net errors and omissions. Since the domestic data agenda has been quiet this week, I thought I might look at the issue in next week's Hurriyet column and did some basic research. Here's what I came up with:
First, some of the UFOs are just resident deposit flows from abroad, which can be tracked down from the BIS locational statistics and CBT local banks foreign branch data. A rough, back-of-the envelope calculation reveals about half of the UFOs can be accounted this way. But there could be other factors in play, which would be more difficult to measure.
For one thing, there could be under-the-mattress foreign currency and a few large swap operations. While the former is almost impossible to quantify, there is some anecdotal evidence for the latter, at least for the early part of the year. Moreover, outflows could be overstated by valuation changes, which could have contributed around 10% in May.
In addition, the May figure, which posted another significant positive UFO turnout after April slightly negative reading, could be reflecting lira carry trade in with instruments not adequately covered in the Balance of Payments data. If this is indeed the case, we may end up with positive UFOs in June and especially July, as lira's carry value seems to be have come to the spotlight (along with others like Australian dollar, South African rand and Brazilian real) with the reemergence of the risk appetite play on EM.
If I take this issue on Monday, I will try to quantify the different factors at play a bit more...
First, some of the UFOs are just resident deposit flows from abroad, which can be tracked down from the BIS locational statistics and CBT local banks foreign branch data. A rough, back-of-the envelope calculation reveals about half of the UFOs can be accounted this way. But there could be other factors in play, which would be more difficult to measure.
For one thing, there could be under-the-mattress foreign currency and a few large swap operations. While the former is almost impossible to quantify, there is some anecdotal evidence for the latter, at least for the early part of the year. Moreover, outflows could be overstated by valuation changes, which could have contributed around 10% in May.
In addition, the May figure, which posted another significant positive UFO turnout after April slightly negative reading, could be reflecting lira carry trade in with instruments not adequately covered in the Balance of Payments data. If this is indeed the case, we may end up with positive UFOs in June and especially July, as lira's carry value seems to be have come to the spotlight (along with others like Australian dollar, South African rand and Brazilian real) with the reemergence of the risk appetite play on EM.
If I take this issue on Monday, I will try to quantify the different factors at play a bit more...
Posts
No comments:
Post a Comment