Current Account Adjustment and Retained Earnings

59 Pages Posted: 25 Oct 2018 Last revised: 29 Apr 2020

See all articles by Andreas M. Fischer

Andreas M. Fischer

Swiss National Bank; Centre for Economic Policy Research (CEPR)

Henrike Groeger

European University Institute

Philip U. Sauré

Johannes Gutenberg University Mainz - Gutenberg School of Management and Economics; CESifo (Center for Economic Studies and Ifo Institute)

Pinar Yesin

Swiss National Bank

Multiple version iconThere are 2 versions of this paper

Date Written: 2018-08-01

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

JEL Classification: F32, F47, G11

Suggested Citation

Fischer, Andreas M. and Groeger, Henrike and Sauré, Philip U. and Yeşin, Pınar, Current Account Adjustment and Retained Earnings (2018-08-01). Globalization and Monetary Policy Institute Working Paper No. 345, Available at SSRN: https://ssrn.com/abstract=3272647 or http://dx.doi.org/10.24149/gwp345

Andreas M. Fischer (Contact Author)

Swiss National Bank ( email )

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Centre for Economic Policy Research (CEPR)

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Henrike Groeger

European University Institute ( email )

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Philip U. Sauré

Johannes Gutenberg University Mainz - Gutenberg School of Management and Economics ( email )

Germany

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Munich, DE-81679
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Pınar Yeşin

Swiss National Bank ( email )

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Switzerland
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