EXPLANATORY NOTES

INTRODUCTION

1 This publication presents selected estimates of Australia's international accounts: its balance of payments statistics. These estimates are preliminary quarterly estimates of the current price balance on goods and services and preliminary quarterly estimates of chain volume measures and price indexes for goods debits.

2 The conceptual framework used in compiling Australia's balance of payments statistics is based on the International Monetary Fund's Balance of Payments and International Investment Position Manual, Sixth Edition (BPM6). Descriptions of the underlying concepts and structure of the balance of payments and the sources, methods and terms used in compiling estimates are presented in the publication Balance of Payments and International Investment Position, Australia: Concepts, Sources and Methods, 1998 (cat. no. 5331.0). This version reflects the international standards prior to BPM6 and is currently being revised. The first part of the revised document was released on 8 March 2011, featuring only the Goods Account. Other components will be released as they become available. Further information on the key changes introduced with BPM6 can be found in the Information paper: Implementation of new international statistical standards in the ABS National and International Accounts, September 2009 (cat. no. 5310.0.55.002).


SIGN CONVENTION

3 In keeping with BPM6 conventions, balance of payments credit entries are shown with an implied positive sign and debit items are shown as negative entries. References to balance of payments debit items in Main Features are made without regard to sign.

4 Movements over time are expressed as percentage changes. A minus sign means a decrease in credit entries, a decrease in debit entries, a decrease in a surplus or an increase in a deficit. The absence of a sign means an increase in credit entries, an increase in debit entries, an increase in a surplus or a decrease in a deficit. Percentage change is not applicable if there is a change from a surplus to a deficit, or vice versa.


ACCURACY, RELIABILITY AND REVISIONS

5 While every effort is made to ensure the accuracy and reliability of estimates, care should be exercised in the use and interpretation of estimates in this publication. The transactions occurring in the balance of payments are of many different kinds, and therefore the compilation of balance of payments estimates entails the use of a very wide range of statistical data of varying degrees of accuracy and timeliness. For the latest quarter, estimates for items other than goods are based on preliminary data from providers (using careful estimates where exact figures are unavailable) and fewer survey responses than subsequent estimates. Also, detailed investigations into reported data may be ongoing. As late returns are received, investigations are finalised and more accurate data come to hand, revisions will be made to improve the quality of these estimates.

6 Most series are subject to revision as more complete and accurate information becomes available. In original terms, the goods and services data are revised for previous and current financial years to incorporate the latest available survey and administrative data. In addition, in the September issue revisions can be applied to the four previous financial years.

7 In seasonally adjusted and trend terms, revisions may occur at any time point but tend to focus on the most recent estimates. Please also refer to paragraphs 11 and 12 (seasonal adjustment) and 13 (trend estimates) below.


ECONOMIC TERRITORY

8 Australia's economic territory, on a balance of payments basis, is the area under the effective control of the Australian government. It includes the land area, airspace, territorial waters, including jurisdiction over fishing rights and rights to fuels and minerals. Australian economic territory also includes territorial enclaves in the rest of the world. These are clearly demarcated areas of land, located in other countries and which are owned or rented by the Australian government for diplomatic, military, scientific or other purposes. Specifically, the economic territory of Australia consists of:

• Geographic Australia which includes Cocos (Keeling) Islands and Christmas Island
• Norfolk Island
• Australian Antarctic Territory
• Heard Island and McDonald Islands
• Territory of Ashmore Reef and Cartier Island
• Coral Sea Islands
• Australia's territorial enclaves overseas
• the Joint Petroleum Development Area (joint territory between Australia and Timor–Leste).

9 Because of administrative complexities and measurement difficulties, Norfolk Island transactions with the rest of the world will not always be captured in all relevant balance of payments statistics. Most of the transactions involving Norfolk Island are not material to Australia's trade performance and not capturing these transactions will not distort these statistics. However, any significant transactions will be identified and included in the relevant statistics.


SEASONALLY ADJUSTED AND TREND ESTIMATES

10 Quarterly original estimates are volatile, being subject to calendar–related and large irregular influences. Seasonally adjusted estimates are derived by estimating and removing from the original series systematic calendar related effects, such as seasonal (e.g. Christmas), trading day and moving holiday (e.g. Easter) influences. Seasonal adjustment does not aim to remove the irregular or non–seasonal influences which may be present in any particular quarter. These irregular influences may reflect both random economic events and difficulties of statistical recording.

11 The seasonally adjusted statistics in this publication use the concurrent seasonal adjustment technique and Autoregressive Integrated Moving Average (ARIMA) modelling to estimate factors for the current and previous quarters. Under concurrent seasonal adjustment, the estimates of seasonal factors are fine–tuned as new or revised original estimates become available each period. The seasonally adjusted estimates are subject to revisions at each reference quarter as the estimates of seasonal factors are improved. In most cases chain volume measures are adequately seasonally adjusted by using the current price values' seasonal factors, however, some goods components are independently seasonally adjusted.

12 ARIMA modelling relies on the characteristics of the series being analysed to project future period data. ARIMA modelling is used on a case–by–case basis where it results in reduced revisions to seasonally adjusted series when subsequent data becomes available. The projected values are temporary, intermediate values, that are only used internally to improve the estimation of the seasonal factors. The projected data do not affect the original estimates and are discarded at the end of the seasonal adjustment process. The ARIMA model is assessed as part of the annual review for both chain volume measures and current price values and following the 2012 annual review, the majority of directly seasonally adjusted time series in the current account use an ARIMA model.

13 Trend estimates are published as the quarter–to–quarter movements of the seasonally adjusted estimates may not be reliable indicators of underlying behaviour because they include irregular or non–seasonal movements. Trend estimates reduce the effect of these movements as they are derived by applying a 7–term Henderson moving average to the seasonally adjusted series. The 7–term Henderson moving average (like all Henderson averages) is symmetric, but as the end of a time series is approached, asymmetric forms of the average are applied. While the asymmetric weights enable trend estimates for recent quarters to be produced, it does result in revisions to the estimates for the most recent three quarters as additional observations become available. Revisions to trend estimates can also occur because of revisions to the original data and as a result of the re–estimation of the seasonal factors. Trend estimates should be used with caution, especially around the time of unusual influences, until these have been appropriately taken into account.

14 Information papers and articles on time series methods are available on the ABS website:

• for seasonal adjustment methods, see Information Paper: An Introductory Course on Time Series Analysis, Jan 2005 (cat. no. 1346.0.55.001) and Time Series Analysis Frequently Asked Questions, 2003 (cat. no. 1346.0.55.002)
• for ARIMA modelling, see Feature article: Use of ARIMA modelling to reduce revisions in the October 2004 issue of Australian Economic Indicators (cat. no. 1350.0)
• for trend estimates methods, see Information Paper: A Guide to Interpreting Time Series – Monitoring Trends (cat. no. 1349.0)
• alternatively contact the Assistant Director, Time Series Analysis on (02) 6252 6345 or e–mail <time.series.analysis@abs.gov.au>.

VOLUME AND PRICE ESTIMATES

15 Volume data are in terms of chain volume estimates (see paragraph 16) and price data are in terms of implicit price deflators (see paragraph 17).


CHAIN VOLUME MEASURES

16 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. The reference year is updated with the release of each September quarter issue of the publication Balance of Payments and International Investment Position, Australia (cat no. 5302.0). Prior to the reference year chain volume measures are non–additive, in that the component chain volume measures of an aggregate will not add through to the chain volume measure of the total aggregate. For more information on chain volume measures refer to Information Paper: Australian National Accounts, Introduction of Chain Volume and Price Indexes (cat. no. 5248.0).


IMPLICIT PRICE DEFLATOR (IPD)

17 The quarterly implicit price deflators (IPDs) are derived by dividing current price estimates by the corresponding chain volume measures. Movements in IPDs can be greatly affected by changes in the physical composition of the aggregates and their components. The quarterly IPDs derived from seasonally adjusted data are preferred to those using original data because the seasonal adjustment process removes some of the seasonal changes in the composition of this series. However, the seasonal adjustment process itself is also a possible source of distortion.


CHAIN LASPEYRES PRICE INDEXES

18 The chain Laspeyres price indexes are derived by combining individual component prices with weights which reflect the average relative importance of the components in the previous year. These are then indexed to the relevant reference year. For all periods since the latest reference year, reference year weights are used.


RELATED PRODUCTS AND PUBLICATIONS

19 The final outcomes and more detailed breakdowns of the estimates in this publication will be published in the next quarterly issue of Balance of Payments and International Investment Position, Australia (cat. no. 5302.0).

20 The current issue of Balance of Payments and International Investment Position, Australia (cat. no. 5302.0) includes unrevised estimates for prior periods.

21 Users may also wish to refer to the following publications which can be downloaded free of charge from the ABS website:

• International Trade in Goods and Services, Australia (cat. no. 5368.0) – issued monthly
• International Merchandise Imports, Australia (cat. no. 5439.0) – issued monthly
• International Trade Price Indexes (cat. no. 6457.0) – issued quarterly
• International Trade in Services by Country, by State and by Detailed Service, Financial Year (cat. no. 5368.0.55.003) and Calendar Year (cat. no. 5368.0.55.004)
• Balance of Payments and International Investment Position, Australia: Concepts, Sources and Methods (cat. no. 5331.0)
• International Merchandise Trade, Australia: Concepts, Sources and Methods, 2001 (cat. no. 5489.0)
• Information Paper: Quality of Australian Balance of Payments Statistics (cat. no. 5342.0), issued on 20 February 1996.

22 Current publications and other products released by the ABS are available from the Statistics tab on the ABS website. The ABS also issues a daily Release Advice on the website which details products to be released in the week ahead. Theme pages are available on the ABS website.