What is the Accommodating Item in the Balance of Payments?

Balance of payments accounts are constructed using a double-entry accounting principle such that total credits equal total debits. Modelling each entry independently will not guarantee this equality. It is therefore important to identify the counterpart entries or 'accommodating' items that ensure that total credits equal total debits. This short paper identifies the accommodating item for the UK by presenting institutional evidence on the means of payment for international transactions. The paper contributes to the debate about whether the net overseas assets of banks are determined by the non-bank private sector or by the banks themselves. It also sheds light on statistical attempts to measure the volatility of various investment flows. The conclusions of the paper are likely to apply to any developed country with a well-developed banking system.Balance of payments, autonomous, accommodating, bank deposits, volatility

Can Domestic Liabilities Explain the Home Bias in UK Investment Portfolios?

It has been suggested that domestic liabilities may be an important factor in explaining the existence of a home bias in international investment portfolios. This paper provides a theoretical justification for this claim in a mean-variance framework. However, an empirical analysis for the UK does not find this effect to be large. Mean-variance efficient portfolios already exhibit significant home bias relative to the world market portfolio. Further, the predicted portfolios differ considerably from the actual portfolios of UK life assurance companies and pension funds. Possible reasons for this include weaknesses in the mean-variance approach and the role of peer pressure.mean-variance, liabilities, portfolio allocation, pension funds, insurance companies.

Why are UK Banks' Overseas Assets and Liabilities So Large?

The overseas assets and liabilities of UK banks account for over 50% of the overseas assets and liabilities of all UK residents and almost 50% of UK banks' total assets and liabilities. They are much larger than the overseas assets of banks in other developed countries. This paper adopts an institutional, theoretical and empirical approach to explain the large size of these overseas assets. We find that over 80% of these assets and liabilities are accounted for by foreign-owned UK banks and their large size may be traced to the development of the Euro-currency markets in London in the late 1950s and 1960s. Although net overseas bank assets can, in principle, be explained, the gross assets are more problematic. The theoretical literature is quite limited and the most appropriate macroeconomic framework would be complex and difficult to apply. We therefore examine some simpler empirical hypotheses about the size of these assets and liabilities but find that they are rejected by the data. We conclude that while an institutional and theoretical approach reveals the nature of UK banks' overseas assets and liabilities and suggests some of their determinants, developing a satisfactory empirical model is quite difficult.UK banks, overseas assets and liabilities, foreign-owned, euro- currency markets.

Government and industry performance: a comparative study

A number of UK industries are heavily dependent on the government as a major purchaser. The Ministry of Defence and the National Health Service are essentially monopsonists for the industries supplying them. As a monopsonist, government can influence the size, structure, conduct and performance of the industries. This paper examines wheather industries relying heavily on government purchases will differ in their structure, conduct and performance-characteristics and whether dependence on goverment can have favourable or adverse effects on industry performance. The hypothesis is tested by comparing the performance of industries dependent on government purchasing - defence, pharmaceuticals and medical equipment - with a control group of other non-dependent industries.