What´s true of the Riksbank is also likely true of many central banks

Lars Svensson, one of the most famous proponents of IT, considers:

An odd thing is the Riksbank’s repeated assertions, if not nagging, about how expansionary the Riksbank’s monetary policy is supposed to be. “A very expansionary monetary policy,” it says in the Monetary Policy Update December 2014, and so said the Governor Ingves at the press conference after the policy announcement. But according to what criterion would monetary policy be expansionary? According to standard criteria, including comparisons with other countries, the Riksbank’s monetary policy is by no means expansionary, but by all accounts quite contractionary. One may ask whether the Riksbank’s repeated assertions are due to ignorance or is an example of disinformation.

I would think it would be hard to pin it on generalized ignorance. After all many heads of central banks are either well known academics and/or experienced economic managers. If that´s true, a combined try at disinformation is more likely. For that there is evidence going back at least to the 1930s.

An interesting story of the time is told by Anasthasios Orphanides. In March 1937, just before the final leg of the increase in required reserves was implemented, Marriner Eccles, the Fed Chairman said:

Recovery is now under way, but if it were permitted to become a runaway boom it would be followed by another disastrous crash.

Several months later, halfway through the recession, at the November 1937 meeting John Williams, a Harvard professor, member of the Fed board and its chief-economist said:

We all know how it developed. There was a feeling last spring that things were going pretty fast … we had about six months of incipient boom conditions with rapid rise of prices, price and wage spirals and forward buying and you will recall that last spring there were dangers of a run-away situation which would bring the recovery prematurely to a close. We all felt, as a result of that, that some recession was desirable … We have had continued ease of money all through the depression. We have never had a recovery like that. It follows from that that we can’t count upon a policy of monetary ease as a major corrective. … In response to an inquiry by Mr. Davis as to how the increase in reserve requirements has been in the picture, Mr. Williams stated that it was not the cause but rather the occasion for the change. … It is a coincidence in time. … If action is taken now it will be rationalized that, in the event of recovery, the action was what was needed and the System was the cause of the downturn. It makes a bad record and confused thinking. I am convinced that the thing is primarily non-monetary and I would like to see it through on that ground.

3 thoughts on “What´s true of the Riksbank is also likely true of many central banks

  1. Egads. Well, central bankers never make mistakes.
    I still think performance-based pay—that would include real GDP growth—is necessary for central bankers and staffs. In sace sinecures, central bankers are always happy to apply the monetary noose.

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