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Current Account Adjustment and Retained Earnings

Andreas Fischer (), Henrike Groeger, Philip Sauré () and Pinar Yesin ()
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Henrike Groeger: European University Institute

No 345, Globalization Institute Working Papers from Federal Reserve Bank of Dallas

Abstract: This paper develops a formal strategy to calculate current accounts with retained earnings (RE) on equity investment and analyzes their adjustment during the global financial crisis. RE are the part of companies' profits which are reinvested and not distributed to shareholders as dividends. International statistical standards treat RE on foreign direct investment and RE on portfolio investment differently: while the former enter the current and financial account, the latter do not. We show that this differential treatment strongly affects current accounts of several advanced economies, frequently referred to as financial centers, with large positions in equity (portfolio) investment. Our empirical analysis finds that the differential treatment of RE alters the interpretation of current account adjustment for the global financial crisis.

Keywords: Current account adjustment; financial centers; retained earnings; equity investment (search for similar items in EconPapers)
JEL-codes: F32 F47 G11 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cfn and nep-opm
Date: 2018-08-01
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Related works:
Journal Article: Current account adjustment and retained earnings (2019) Downloads
Working Paper: Current account adjustment and retained earnings (2018) Downloads
Working Paper: Current account adjustment and retained earnings (2018) Downloads
Working Paper: Current account adjustment and retained earnings (2018) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:fip:feddgw:345

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DOI: 10.24149/gwp345

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