Box: Examples of Source Data and Methods Used To Prepare the Economic Accounts—Continued

Example estimate from the balance of payments accounts: Transactions in securities other than U.S. Treasury securities

Portfolio investment—that is, securities transactions between U.S. and unaffiliated foreign residents other than foreign official agencies—is measured in two capital accounts: "U.S. securities—net foreign purchases," which was $80.1 billion in 1993, and "foreign securities—net U.S. purchases," which was $120.0 billion.

The securities covered are stocks and bonds with an original maturity of more than 1 year. The accounts cover new issues in the United States and abroad as well as trading in, and redemptions of, outstanding U.S. and foreign securities.

The primary source data are from the U.S. Department of the Treasury's International Capital reporting system—specifically, the monthly S form, "Purchases and Sales of Long-Term Securities by Foreigners." Filing of S forms is required for all securities brokers, dealers, and other persons in the United States who, on their own behalf or on behalf of customers, engage in transactions in long-term securities with foreigners.

The methodology described in the table below (which follows the order of the standard quarterly balance of payments tables) is for "foreign securities—net U.S. purchases"; the methodology for "U.S. securities—net foreign purchases" is similar.

In the context of the discussion of sources and methods, there are several points of interest:

Source data coverage: The S form covers mainly intermediated transactions; however, direct transactions for large pension and investment managers are covered.

Role of estimating methods: BEA makes numerous adjustments, some from fragmentary data, to arrive at the needed coverage (for example, with respect to coverage of commissions, taxes, and other charges) and timing (for example, transactions not yet recorded in S-form data).

Relations among the estimates: Positions—that is, outstanding holdings—that correspond to these capital flows are shown in the net international investment position; the positions are estimated by cumulating the capital flows from periodic benchmark survey-based levels and adjusting for price change. (The positions, along with an estimated representative yield, are used to estimate income flows for the current account of the balance of payments.) Net U.S. purchases of foreign stocks (line 2): BEA estimates net transactions in outstanding stocks (line 4) as follows:

1. Data on gross sales and gross purchases of foreign stocks in the United States by foreigners are based on the monthly S reports. BEA adjusts the data to exclude estimates of commissions, taxes, and other charges from reported gross foreign purchases; to include estimates of commissions, taxes, and other charges from reported gross foreign purchases; and to include estimates of charges in reported gross foreign sales.
2. The value of stocks representing U.S. direct investment abroad is deducted from the net figure.
3. The value of stocks exchanged as part of a foreign direct investment in the United States is added.
4. Other adjustments include additions or subtractions for transactions that have not yet been incorporated into the Treasury data and additions for transactions that have been omitted, but that have been verified from other sources.

BEA estimates new foreign issues (line 3) on the basis of financial market information.

Net U.S. purchases of foreign bonds (line 5): BEA estimates net transactions in outstanding bonds other than redemptions (line 8) as follows:

1. Data on gross sales and gross purchases in the United States by foreigners of foreign corporate bonds are based on the monthly S reports. BEA adjusts the data to include estimates of commissions, taxes, and other charges from reported gross foreign purchases and to include estimates of underwriting fees on new issues, other fees, taxes, and other charges in reported gross foreign sales.
2. Adjustments are made to the data covering U.S. purchases of Canadian bonds to account for additional redemptions of Canadian-issued bonds that are held by U.S. residents.
3. Other adjustments include additions or subtractions for transactions that have not been incorporated into the Treasury data; additions for transactions that have been omitted from the S form, but that have been verified from other sources; and additions for acquisitions of foreign debt securities by U.S. residents through the exchange of securities with foreign residents, including those resulting in foreign direct investment in the United States.

BEA estimates new foreign issues (line 6) on the basis of financial market information, with separate estimates by type of issuer.

BEA estimates bond redemptions (line 7) from information on scheduled retirements.

Source: U.S. Department of Commerce, Bureau of Economic Analysis, The Balance of Payments of the United States: Concepts, Data Sources, and Estimating Procedures (Washington, DC: U.S. Government Printing Office, May 1990) as updated in the June issues of the SURVEY OF CURRENT BUSINESS, 1991–94.