The Measurement of External Accounts
IMF Working Papers, June 28, 2019
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- The Measurement of External Accounts
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Bibliographic details
- Authors: Gustavo Adler, Daniel Garcia-Macia, Signe Krogstrup
- Published: June 28, 2019
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781498317450.001
Overview
- Authors: Gustavo Adler, Daniel Garcia-Macia, Signe Krogstrup
- Date: June 28, 2019
- Paper series: IMF Working Papers; Working Paper No. 2019/132
- Core summary:
- Growing international integration in trade and finance can challenge the measurement of external accounts.
- The paper presents a unified conceptual framework to identify sources of mismeasurement of foreign investment income in current account balances.
- The framework yields a precise definition of measurement distortions and an empirical strategy to estimate their importance.
- As an application, two specific distortions related to inflation and retained earnings on portfolio equity are empirically estimated for a broad set of countries.
- Findings indicate these distortions may explain a non-trivial share of current account imbalances and are particularly relevant in countries with large external investment positions.
- The paper also discusses how merchanting and profit-shifting activities could produce measurement distortions.
- The authors suggest areas for future research and underline the need to strengthen data collection efforts.
Conceptual framework and empirical strategy
- Purpose:
- Provide a unified conceptual framework for identifying sources of mismeasurement of foreign investment income in current account balances.
- Outputs of the framework:
- A precise definition of measurement distortions.
- An empirical strategy for estimating the importance of these distortions.
Empirical application and key findings
- Distortions empirically estimated:
- Inflation-related distortion on foreign investment income.
- Retained earnings distortion on portfolio equity.
- Scope:
- Estimated for a broad set of countries.
- Main empirical findings:
- These two distortions may explain a non-trivial share of current account imbalances.
- Distortions are particularly relevant in countries with large external investment positions.
Other potential measurement distortions discussed
- Merchanting activities as a potential source of measurement distortion.
- Profit-shifting activities as a potential source of measurement distortion.
Policy recommendations and research agenda
- Strengthen data collection efforts to better measure foreign investment income and reduce measurement distortions.
- Areas suggested for future research (as discussed by the authors):
- Further exploration of inflation-related measurement issues.
- Deeper analysis of retained earnings and portfolio equity accounting across jurisdictions.
- Investigation of merchanting and profit-shifting channels and their measurement implications.
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- Working Paper