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The Capital Account

  • Bo Södersten
  • Geoffrey Reed
Chapter

Abstract

So far we have concentrated either on the current account in the balance of payments, or on one of its major components, the balance of trade. If there were no capital flows then a theory of the current account would be a theory of the balance of payments. There have been periods in which there has been little capital mobility, though for different reasons. There was no international capital market to speak of in the 1930s, for example, since the volatility of exchange rates dominated any feasible differences in interest rates between countries. When the Bretton Woods system was agreed it was decided to create an international institution (the World Bank) that would facilitate international capital movements, since it was believed that the private capital market would not re-emerge. Moreover, in the immediate post-war period many countries imposed controls on capital movements. This lack of capital mobility may explain why little attention was given to modelling international capital flows in that period, and why the models developed thereafter were initially very simple.

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Copyright information

© Bo Södersten and Geoffrey Reed 1994

Authors and Affiliations

  • Bo Södersten
    • 1
  • Geoffrey Reed
    • 2
  1. 1.LundSweden
  2. 2.NottinghamUK

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