Work detail

Econometric Models of the Balance of Payments

Author: Mgr. Vladimír Čermák
Year: 1999 - summer
Leaders: doc. Ing. Vladimír Benáček CSc.
Work type: Finance and Banking
Language: Czech
Pages: 83
Awards and prizes: M.A. with distinction from the Dean of the Faculty of Social Sciences for an extraordinarily good masters diploma thesis
Abstract: The master thesis "Econometric Models of the Balance of Payments" focuses, as apparent from its title, on quantification of factors influencing the balance of payments. All the elaborated models concern the data for the Czech Republic.
First several pages describe the reasons, why the author decided to work out thesis on this topic. Next section provides brief introduction to the theory of the balance of payments in the so-called textbook manner. This includes among other explanation of basic terms as structure of balance of payments (BoP), accounts and fundamental factors relevant in subsequent models.
After these probably well-known theoretical passages all other chapters are purely mathematical ones. First of these mathematical (in this context similar term as econometric) models aspires to identify what are the major determinants of the current account. Probably best fit of the model has been achieved for that of the trade balance. Due to non-existence of easily identifiable fundamental variables the other models, as balance of services, balance of transfers or the balance of revenues rather suggest more than final model the most essential variables and their significance.
The other extensive passage concerns the financial account. First section divides the capital flows with respect to their nature and possible fundamental determinants. The model used for description of capital flows depends on microeconomics relating the optimization of rational individual. This means that investment in different countries is not only implied by expected yield, but also correlation of riskiness of such assets with domestic ones and how significant the country in world economy is. This model gives surprisingly good results. The section concerning foreign direct investment is rather a supplementary one and should be considered as a proposal for extension of the previous model.
The reason for existence of next two next chapters is to describe all the accounts of BoP. However, models describing account like errors and omissions are naturally condemned to failure, as otherwise central bank would not need to attribute the discrepancies to errors, if "errors" could be modeled...
The last but one section summarizes the results of the models. It appreciates the quality and descriptive power of the model of balance of trade and balance of capital flows. The models of marginal accounts of BoP are critically evaluated. However, it is not sure, whether they are even worth modeling.
After that, works used for compilation of this thesis are listed.
Downloadable: Diploma Thesis - Ćermák
August 2022




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