The Measurement of External Accounts

31 Pages Posted: 7 Aug 2019

See all articles by Gustavo Adler

Gustavo Adler

International Monetary Fund (IMF) - Research Department

Signe Krogstrup

National Bank of Denmark - Economics Department; Danmarks Nationalbank (The Central Bank of Denmark); IMF

Daniel Garcia-Macia

International Monetary Fund (IMF) - European Department

Date Written: June 2019

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: Foreign investment income, Balance of payments statistics, Financial statistics, Economic integration, Foreign investment, International investment position, Current Account, Measurement, External Imbalances, Global Imbalances., retained earnings, NIIP, statistical definition, investment position, debt position

JEL Classification: F32, G11, G20, E01, F3, O24, E31, C

Suggested Citation

Adler, Gustavo and Krogstrup, Signe and Garcia-Macia, Daniel, The Measurement of External Accounts (June 2019). IMF Working Paper No. 19/132. Available at SSRN: https://ssrn.com/abstract=3433130

Gustavo Adler (Contact Author)

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States

Signe Krogstrup

National Bank of Denmark - Economics Department ( email )

1093 Copenhagen
Denmark

Danmarks Nationalbank (The Central Bank of Denmark) ( email )

Havnegade 5
Copenhagen, 1093
Denmark

IMF ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Daniel Garcia-Macia

International Monetary Fund (IMF) - European Department ( email )

700 19th Street NW
Washington, DC 20431
United States

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