The Capital Account Introduced

Abstract

The introduction of the capital and unilateral transfer accounts into a theory of balance-of-payments analysis increases the complexity of the frame of reference by a great deal. When the framework of analysis built around the use of a competitive ratio and period-analysis was limited to transactions in current goods and services and a means of payment, there was only limited scope for variation in the target balance, and both the data-effects and the adjustments (both quasi-and basic adjustments) took their effects on transactions in goods and services and, therefore, in what might be called ‘the same dimension’. The introduction of unilateral transfers and flows of international investments increases the number of dimensions. As a result, the selection of the target variable is made more complex, the range of quasi-adjustments is enlarged and the variability of data-effects can achieve a new order of magnitude.