New Perspective on the ‘Net Errors and Omissions’ in Balance of Payment Accounts: An Empirical Study in Australia

This study aims to identify and examine the potential economic factors that determining the ‘net errors & omissions’ (EO) in balance of payment accounts. Two structural specifications are derived from the balance of payments (BoP) constraint, and open economy macro equilibrium (income-expenditure approach), respectively. There are some positive findings. The empirical results obtained from the Australian data show real GDP, foreign income, foreign interest rate, domestic interest rate, and exchange rate have either directly or indirectly caused EO over the sample period 1960-2010. Also, a reverse direction is obtained from EO to domestic interest rate. This study is considered as an important reference for further research.