Interdependence of capital account and current account

What is it about?

The study inquires whether the current account and the capital account in Sri Lanka are associated and the nature and direction of such association. In the event of such an association, the interactions of these two accounts are studied. Role of some policy variables in the association of these two accounts is also studied.

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Why is it important?

Theoretically, a simultaneous surplus or deficit of the current account and the current account is not possible. A surplus in one account entails a deficit in the other and vice-versa. The direction and the nature of the interactions of the current account and the capital account help to identify whether the current account deficit is the cause of the capital account surplus or the capital account surplus is the cause of the current account deficit.

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