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Retained Earnings, Foreign Portfolio Ownership, and the German Current Account: A Firm-Level Approach

Author

Listed:
  • Goldbach Stefan

    (Deutsche Bundesbank, Frankfurt am Main, Germany)

  • Harms Philipp

    (Johannes Gutenberg University Mainz, Mainz, Germany)

  • Jochem Axel

    (Deutsche Bundesbank, Frankfurt am Main, Germany)

  • Nitsch Volker

    (Technische Universität Darmstadt, Darmstadt, Germany)

  • Weichenrieder Alfons J.

    (Goethe University Frankfurt, Vienna University of Economics and Business, Leibniz Institute for Financial Research SAFE & CESifo, Frankfurt (Main), Germany)

Abstract

In some countries, a sizable fraction of savings is derived from corporate savings. Although larger, traded corporations are often co-owned by foreign portfolio investors, current international accounting standards allocate all corporate savings to the host country. This paper suggests a framework to correct for this misleading attribution and applies this concept to Germany. For the years 2012–2020, our corrections retrospectively reduce German savings and consequently the German current account surplus by, on average, €11.5 bn annually. This amounts to lowering Germany’s average official current account surplus (€226.6 bn) across these years by approximately five percent.

Suggested Citation

  • Goldbach Stefan & Harms Philipp & Jochem Axel & Nitsch Volker & Weichenrieder Alfons J., 2024. "Retained Earnings, Foreign Portfolio Ownership, and the German Current Account: A Firm-Level Approach," German Economic Review, De Gruyter, vol. 25(2), pages 127-145.
    • Handle: RePEc:bpj:germec:v:25:y:2024:i:2:p:127-145:n:1001
    DOI: 10.1515/ger-2023-0065
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    Keywords

    current account; balance of payments; corporate savings; retained earnings; foreign portfolio investment; Germany;
    All these keywords.

    JEL classification:

    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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