Finn Kydland and Edward Prescott were awarded the Bank of Sweden Prize in Economic Science in Memory of Alfred Nobel for 2004 for their work in “time-consistent policy and the generation of the business cycle”.

As is the case with these awards, the contributions of these men have long ago been absorbed by the academic community. The primary effect of awarding these prizes is to confer prestige on the winners, encouraging further work in a particular area, and enhancing the value of their opinions in the public media.

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Capital Flow Analysis is a sub-technique in the general field of flow of funds analysis. John Dawson, the leading expert on flow of funds analysis, said that “Flow of funds analysis is an undefined and partially hidden field of study”.

(See: “Flow of Funds Analysis: A Handbook for Practitioners“)

The flow of funds accounts themselves were developed in the 1940s and 1950s by Morris Copeland, an economist with the Federal Reserve Bank and were later expanded and polished by Stephen Taylor, the Chief of Flow-of-Funds of the Federal Reserve.

At that time, the compilation of flow of funds statistics was a branch of “social accounting”, which itself was a major sub-field of economic statistics. The initial technique followed guidelines of financial statements and therefore was oriented towards financial markets and people of the real world rather than theoretical economists.

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