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Filtering by: Creator Prescott, Edward C. Remove constraint Creator: Prescott, Edward C. Creator McGrattan, Ellen R. Remove constraint Creator: McGrattan, Ellen R. Subject (JEL) F32 - Current Account Adjustment; Short-term Capital Movements Remove constraint Subject (JEL): F32 - Current Account Adjustment; Short-term Capital Movements

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  • Vd66vz98m?file=thumbnail
    Creator: McGrattan, Ellen R. and Prescott, Edward C.
    Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department)
    Number: 407
    Abstract:

    Appendix A provides firm-level and industry-level evidence that is consistent with several key features of our model, including the predictions that rates of return increase with a firm’s intangible investments and foreign affiliate rates of return increase with age and with their parents’ R&D intensity. Appendix B provides details for the computation of our model’s equilibrium paths, the construction of model national and international accounts, and the sensitivity of our main findings to alternative parameterizations of the model. We demonstrate that the main finding of our paper—namely, that the mismeasurement of capital accounts for roughly 60 percent of the gap in FDI returns—is robust to alternative choices of income shares, depreciation rates, and tax rates, assuming the same procedure is followed in setting exogenous parameters governing the model’s current account. Appendix C demonstrates that adding technology capital and locations to an otherwise standard two-country general equilibrium model has a large impact on the predicted behavior of labor productivity and net exports.

    Subject (JEL): F23 - Multinational Firms; International Business and F32 - Current Account Adjustment; Short-term Capital Movements
  • Gt54kn109?file=thumbnail
    Creator: McGrattan, Ellen R. and Prescott, Edward C.
    Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department)
    Number: 406
    Abstract:

    The U.S. Bureau of Economic Analysis (BEA) estimates the return on investments of foreign subsidiaries of U.S. multinational companies over the period 1982–2006 averaged 9.4 percent annually after taxes; U.S. subsidiaries of foreign multinationals averaged only 3.2 percent. Two factors distort BEA returns: technology capital and plant-specific intangible capital. Technology capital is accumulated know-how from intangible investments in R&D, brands, and organizations that can be used in foreign and domestic locations. Used abroad, it generates profits for foreign subsidiaries with no foreign direct investment (FDI). Plant-specific intangible capital in foreign subsidiaries is expensed abroad, lowering current profits on FDI and increasing future profits. We develop a multicountry general equilibrium model with an essential role for FDI and apply the BEA’s methodology to construct economic statistics for the model economy. We estimate that mismeasurement of intangible investments accounts for over 60 percent of the difference in BEA returns.

    Subject (JEL): F23 - Multinational Firms; International Business and F32 - Current Account Adjustment; Short-term Capital Movements
  • 70795776v?file=thumbnail
    Creator: McGrattan, Ellen R. and Prescott, Edward C.
    Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department)
    Number: 646
    Abstract:

    Over the period 1982–2006, the U.S. Bureau of Economic Analysis (BEA) estimates the return on investments of foreign subsidiaries of U.S. multinational companies averaged 9.4 percent per year after taxes while U.S. subsidiaries of foreign multinationals earned on average only 3.2 percent. We estimate the importance of two factors that distort BEA returns: technology capital and plant-specific intangible capital. Technology capital is accumulated know-how from intangible investments in R&D, brands, and organizations that can be used in foreign and domestic locations. Technology capital used abroad generates profits for foreign subsidiaries with no foreign direct investment. Plant-specific intangible capital in foreign subsidiaries is expensed abroad, lowering current profits on foreign direct investment (FDI) and increasing future profits. We develop a multicountry general equilibrium model with an essential role for FDI and apply the same methodology as the BEA to construct economic statistics for the model economy. We estimate that mismeasurement of intangible investments accounts for over 60 percent of the difference in BEA returns.

    Subject (JEL): F32 - Current Account Adjustment; Short-term Capital Movements and F23 - Multinational Firms; International Business