Current account adjustment and retained earnings

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

No 1809, Working Papers from Gutenberg School of Management and Economics, Johannes Gutenberg-Universität Mainz

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)
Pages: 58 pages
Date: 2018-08-28
New Economics Papers: this item is included in nep-cfn and nep-opm
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https://download.uni-mainz.de/RePEc/pdf/Discussion_Paper_1809.pdf First version, 2018 (application/pdf)

Related works:
Journal Article: Current account adjustment and retained earnings (2019)
Working Paper: Current account adjustment and retained earnings (2018)
Working Paper: Current Account Adjustment and Retained Earnings (2018)
Working Paper: Current account adjustment and retained earnings (2018)
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