Affiliations: [a] Phillips, Fractor and Company, LLC, Pasadena, CA, USA | [b] California State Polytechnic University, Pomona, CA, USA | [c] Department of Economics, California State University, Northridge, Los Angeles, CA, USA | [d] Department of Finance, Financial Planning, and Insurance, California State University, Northridge, Los Angeles, CA, USA
Correspondence:
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Corresponding author: Laurel J. Fish, 750 E. Walnut Street, Pasadena, CA 91101, USA. Tel.: +1 626 744 3540; Fax: +1 626 744 3530; E-mail: [email protected].
Abstract: A recent one-time accounting “repatriation tax” charge against a leading cash flow series (e.g., Federal Reserve Economic Data series, Corporate Net Cash Flow with Inventory Valuation Adjustment) introduces a significant change in 4th Quarter, 2017 that is an accounting artifact. This note demonstrates the econometric impact of the charge and illustrates how to back it out resulting in a series consistent with economic activity. Without the proposed adjustment, the series has what is essentially a permanent outlier that is of such magnitude that it can distort regression coefficients and statistical models when the 4th Quarter, 2017 datapoint is included in analysis.
Keywords: Economic data, forecasting, repatriation tax, net corporate cash flow
