6533b85dfe1ef96bd12be754

RESEARCH PRODUCT

Current account adjustment and retained earnings

Pinar YesinAndreas FischerHenrike GroegerPhilip Sauré

subject

Economics and EconometricsRetained earnings05 social sciencesForeign direct investmentMonetary economicsCurrent accountPortfolio investmentCapital accountInvestment (macroeconomics)0502 economics and businessFinancial crisisEconomicsPortfolio050207 economicsFinance050205 econometrics

description

First published online: 04 March 2019 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 is 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. (C) 2019 Elsevier Ltd. All rights reserved.

yearjournalcountryeditionlanguage
2019-06-01
10.1016/j.jimonfin.2019.02.002https://hdl.handle.net/1814/70287