Tuesday, August 18, 2009

Net Errors and Omissions: A very old story reincarnated

I was talking to a "mature" economist the other day, and he told me, casually, that the current net errors and omissions discussion is not new. A similar discussion was going on in 1997-1998, when the UFOs, or Unidentified Financing Objects, were registering numbers much larger in a relative sense:

In fact, he told me that there was a lively discussion in the papers (news, not academic) between economists on where the discrepancy was coming from and whether it should be ignored. Even the Economist got pulled into the debate, tying the figures to smuggling.

Eventually, just like today, the Central Bank, the guardian of these statistics, decided to take on the issue as well. Their take was to tie the UFOs to shuttle trade from Russia and the NIS; at the time a significant item, especially in Istanbul and the Black Sea coast. They ended up including shuttle trade statistics as well in the BOP. When the NEOs registered a positive number the following year, the discussion was laid to rest, and it stayed dormant after the 2001 crisis, until now, as the UFOs were dwarfed by the ballooning Current and Capital accounts.

Just like more than a decade ago, we have got better statistics as a result of the debate. Now, the CBT tracks resident deposits abroad from the Bank of International Settlements, to which I am proud to say I beat the Bank to- I suggested the methodology in June and did the rough calculations in July. Anyway, while these can only explain part of the errors, as long as there is an improvement, I cannot complain:)...

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