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A Forecasting Model for the United Kingdom Invisible Account
Published online by Cambridge University Press: 26 March 2020
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The National Institute has for some time prepared and published regular forecasts for periods up to 18 months ahead of the United Kingdom's balance of payments on the invisible items in the current account as well as visible trade. The results for the invisible items have compared fairly well with those for visible trade, perhaps because the latter have until recently been the more irregular and difficult to predict. Moreover the very stability of the invisible balance during the 1960s suggests that either many of the items involved are comparatively insensitive to changes in the general economic climate or the effects of such changes were largely offsetting. In neither case could regression analysis be expected to give wholly satisfactory results, particularly in view of the poor quality of some of the data. Nevertheless it seemed worth while to see whether some of the invisible items could with advantage be predicted by formal methods rather than, as in the past, by assessing current trends and making purely ad hoc allowances for such factors as the likely course of shipping freight rates, oil prices and the level of economic activity in the United Kingdom and overseas.
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- Copyright © 1974 National Institute of Economic and Social Research
References
page 58 note (1) An assessment of past forecasting performance is made in R. L. Major and M. J. C. Surrey, ‘Errors in the National Institute forecasts of the balance of payments’, National Institute Economic Review, No. 52, May 1970.
page 58 note (2) For a brief discussion of the past methods see M. J. C. Surrey, The analysis and forecasting of the British economy, Cambridge University Press, 1971.
page 58 note (3) The estimation periods begin in 1958 or 1959 for shipping, civil aviation, travel debits, other service credits and all private services, in 1962 for travel credits and in 1963 or 1964 for the other items. They end with the fourth quarter of 1971 in all cases.
page 59 note (1) For a detailed discussion see the Report of the Committee of Inquiry into Shipping, Cmnd 4337.
page 62 note (1) In this connexion see Zenon S. Zannetos, The Theory of Tankship Rates, MIT Press, 1966.
page 63 note (1) It is, of course, unlikely that this remained true during the commodity price boom.
page 64 note (1) All the indices of air fares used in the equations for both civil aviation and travel were derived from annual estimates, on either a calendar or a financial year basis, of average revenue per passenger mile (kilometre) or revenue per ton mile (kilometre). Apart from the indices based on estimates for the operations of BEA and BOAC, details of which are given in the Appendix, these were averages for the scheduled services of all ICAO members for the world as a whole and for flights within Europe only (see Airline Fares Chronology) and ICAO estimates of the full return fare and several special return fares on the North Atlantic.
page 65 note (1) Separate studies by Wheatcroft and Strazheim cited in M. H. Cooper and A. K. Maynard, The price of air travel, Hobart Paper 53 suggest that price elasticities range from −0.7 for business travel to −2.0 for tourists with an average for all passengers of −1.5 on the North Atlantic routes and of −2.0 for Europe.
page 65 note (2) See Cooper and Maynard, op. cit., page 33.
page 67 note (1) See, for instance, A. S. Gorakis, ‘Effects of exchange rate revaluations and devaluations on receipts from tourism’, IMF Staff Papers, November 1965; J. R. Artus, ‘The effect of revaluation on the foreign travel balance of Germany’, IMF Staff Papers, November 1970; and H. P. Gray, ‘The demand for international travel by the United States and Canada’, International Economic Review, 1966.