The Measurement of External Accounts

Gustavo Adler, Daniel Garcia-Macia and Signe Krogstrup

No 2019/132, IMF Working Papers from International Monetary Fund

Abstract: Growing international integration in trade and finance can challenge the measurement of external accounts. This paper presents a unified conceptual framework for identifying sources of mismeasurement of foreign investment income in current account balances. The framework allows to derive a precise definition of measurement distortions and an empirical strategy for estimating their importance. As an application, we empirically estimate two specific distortions related to inflation and retained earnings on portfolio equity for a broad set of countries. We find these may explain a non-trivial share of current account imbalances and that they are particularly relevant in countries with large external investment positions. We also discuss how merchanting and profit-shifting activities could lead to measurement distortions. We suggest areas for future research and underline the need to strengthen data collection efforts.

Keywords: WP; Current Account; Measurement; External Imbalances; Global Imbalances.; portfolio equity; inflation distortion; liabilities position; retained earnings distortion; inflation income; equity instrument; distortion distortion; inflation income in country c; inflation expectation; current account flow; current account statistics; current account measure; Income; Wages; Stocks; Inflation; Global (search for similar items in EconPapers)
Pages: 30
Date: 2019-06-28
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Citations: View citations in EconPapers (9)

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