The Measurement of External Accounts

By Gustavo Adler, Daniel Garcia-Macia, Signe Krogstrup

June 28, 2019

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Gustavo Adler, Daniel Garcia-Macia, and Signe Krogstrup. The Measurement of External Accounts, (USA: International Monetary Fund, 2019) accessed November 21, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

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.

Subject: Balance of payments, Current account, Financial institutions, Income, Inflation, Labor, National accounts, Prices, Stocks, Wages

Keywords: Current Account, Current account flow, Current account measure, Current account statistics, Distortion distortion, Equity instrument, External Imbalances, Global, Global Imbalances., Income, Inflation, Inflation distortion, Inflation expectation, Inflation income, Inflation income in country c, Liabilities position, Measurement, Portfolio equity, Retained earnings distortion, Stocks, Wages, WP

Publication Details

Pages:

30
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2019/132
Stock No:

WPIEA2019132
ISBN:

9781498317450
ISSN:

1018-5941

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