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The BOP monthly goods and services series and the quarterly current account series are affected by seasonal influences. It is useful to recognise them and take them into account when analysing the data. Seasonal adjustment removes the identifiable effects of normal seasonal variation so that the effects of other influences are more clearly recognised.
The term “seasonal” is used in a general sense to describe those influences that operate in a systematic and calendar-related manner, such as trading day patterns, holiday effects and seasonal patterns. The production cycle of a rural commodity like wheat, in which activities such as sowing, harvesting and subsequent export regularly take place at the same time each year, provides a good example of the type of influence which seasonal adjustment can remove.
The following graph shows both original and seasonally adjusted quarterly data for imports of consumption goods for the period December 1994 to December 2003. It illustrates the difference between seasonally adjusted and original data for this component.
Once the seasonal or calendar-related influences have been removed from the original data, only the “trend” and “irregular” components remain. They give the analyst a better picture of what is happening or likely to happen with the series. The “irregular” element refers to changes which are attributable to unpredictable events such as industrial disputes as well as the “lumpiness” of events occurring infrequently and irregularly (eg. imports of large ships and aircraft).
In cases where the removal of only the “seasonal” element from a seasonally adjusted series may not be sufficient to allow identification of changes in its trend, a statistical technique is used to dampen the irregular element. This technique, which uses a mathematical formula, is known as “smoothing” and the resulting smoothed series are known as trend series. This is shown in the following monthly goods exports (or credits) series.
CHAIN VOLUME MEASURES
The data in the balance of payments are reported at the prices prevailing at the time - these are known as current price data. The changes from period to period in the current price data for goods and services reflect the effect of changes in prices and the changes in the volume of goods and services imported or exported. Analysts may need to remove the effect of the price changes so that the underlying volume changes (sometimes called "real" changes) can be seen more clearly. These series are referred to as chain volume measures.
Chain volume measures are derived by deflating the original current price series by specially compiled measures of price change. The reference year for chain volume measures is the year prior to the latest complete financial year for which data are available. For example, chain volume measures published in the December quarter 2003 issue of 5302.0 are in terms of 2001-2002 dollars.
IMPLICIT PRICE DEFLATORS
An implicit price deflator (IPD) is a derived measure of price change. It is obtained by dividing a current price estimate by the corresponding chain volume measure. It is then multiplied by 100 and so has a value of 100 in the reference year. Movements in IPDs can be affected by changes in the physical composition of the aggregates and their components. As much of the quarter-to-quarter change in the physical composition of these aggregates is of a seasonal nature, IPDs derived from seasonally adjusted data are normally more reliable than those calculated from unadjusted data. Even so, seasonally adjusting the series may not completely eliminate the impact of seasonal changes in the derived IPDs.
CHAIN PRICE INDEXES
In addition to implicit price deflators, the ABS produces annually re-weighted chain price indexes. The chain price indexes are formed by applying current price weights for the previous year to the detailed price indexes used to derive chain volume measures and then aggregating them. The chain price indexes provide a superior measure of pure price change than the implicit price deflators.
TERMS OF TRADE
The terms of trade shows a country's export prices relative to its import prices. There are several ways of measuring the terms of trade. In the quarterly publication, the following index is used:
----------------------------------------------------- x 100
Implicit price deflator for the debit item
A rise in the index implies an improvement in a country’s terms of trade, enabling it to purchase more imports from the same amount of exports. A fall in the index implies a deterioration in a country’s terms of trade, requiring it to export more to purchase the same amount of imports. Movements in the terms of trade are used in assessing the changing purchasing power of exports over imports, analysing real income, and evaluating the level of consumption that can be sustained in the domestic economy.
The following graph shows Australia's seasonally adjusted terms of trade for the period December 1994 to December 2003.
Trend estimates of the terms of trade are also published.
In analysing an economy's balance of payments and international investment position statistics, it is often useful to relate these statistics to each other or to other economic indicators, so that account can be taken of the effects of inflation or growth in the economy. This is done through various balance of payments and international investment position ratios. These ratios enable examination of the balance of payments and international investment position within the framework of the economy as a whole.
The current account to GDP ratio expresses the balance of payments current account aggregate as a percentages of GDP, the measure of an economy's production level. A negative ratio indicates a deficit in the balance of payments.
The net international investment position to GDP ratio is derived from net foreign liabilities at the end of the period and GDP for the year ended with that period. The following graph shows the net international investment position, and its two broad components: net foreign equity; and net foreign debt, as percentages of annual GDP.
The debt interest to income ratio is the ratio of net interest payable on net foreign debt to exports (goods and services credits) for the year ended each quarter. The ratio represents Australia's ability to earn export revenue from foreign countries with which to 'service' (or pay interest on), our net foreign debt liabilities. The following graph shows the debt to income ratio for the period December 1994 to December 2003.