How to write the history of the Riksbank

8 lessons for Norway from Sweden

Lars Jonung, DG ECFINOctober 31, 2008

Workshop on

Writing Central Bank and Monetary History – what are the issues?

Organizers: The Graduate Institute, Geneva, and Norges Bank30-31 October, Geneva

Norges Bank’s bicentenary project 1816-2016

This presentation is based on my participation in a project, financed by the Riksbank, to write the ”modern” history of the Riksbank for the period 1945-1990 and on work following this project.

Four professors in economics were involved 1989-1992.

The Riksbank gave us full freedom to select the topics for our book, the methodology, etc.

The Riksbank opened up its archives for the period 1945-1986.

Q: How do you start a project like this?

A: You gather a conference of central bank historians

I did so - in June 1989 in Copenhagen. The topic for the conference was:

How should central bank policy be analyzed today?

Some of you here today were present in Copenhagen in 1989

Eight approaches to a history of the Riksbank:

1. The Riksbank as a public institution2. The Riksbank as a bank for the government3. The Riksbank as a guardian of a fixed exchange rate

and a stable price level4. The Riksbank as a lender of last resort5. The Riksbank as a regulator of the commercial

banking system6. The Riksbank as a political entity7. The Riksbank as an administrative body 8. The Riksbank examined a la Friedman-Schwartz – a

monetarist approach with M-supply data in appendices

Conclusion?

The 1989 meeting did not create unity – a common view around one approach to writing Riksbank history.

Instead, we (”the gang of four”) decided to use many approaches, to examine the Riksbank from several perspectives.

We came from different backgrounds and research interests.

Four professors and four stories/topics:

The financial system (Lars Werin)

Exchange rate policy and the IMF (Clas Wihlborg)

Housing policy (Peter Englund)

The Riksbank (Lars Jonung)

My approach to writing the history of the Riksbank. See PM 16.

A two step strategy:

Step I.

Preparing one main narrative core – the history of the Riksbank - identifying major trends and crucial changes, revealing central determinants behind the actions of the Riksbank. Searching for unifying themes.

Organization: A chronological one.

Step II

Preparing studies of central topics/features in the history of the Riksbank like:

- The life cycle of credit market regulations 1939-1989

- The political economy of the Riksbank (An election cycle in Riksbank policy?)

- The relationship between the Riksbank and the commerical banks in the conduct of monetary policy

-

Preparatory steps before writing:

1. Searching all archives in the Riksbank and around the Riksbank, checking press-releases, speeches of Riksbank officials, preparing a bibliography of publications on Riksbank policy

2. Interviewing policy-makers, bankers, Riksbank staff

3. Text analysis?

4. The role of econometrics?

5. The role of theory?

Preparatory steps:

Mapping the archives:

The archive of the Riksbank was a disappointment. Only the decisions were there, not the internal debate, different views, arguments for and against policy measures etc.

The archives of the Bankföreningen turned out to be a ”gold mine”. The best archive on the actions of the Riksbank was not with the Riksbank.

Preparatory steps: Interviewing decision-makers

This turned into a method of constructing an archive. We interviewed - One minister of finance (Gunnar Sträng)- Several central bankers- Several commercial bankers

Lunch with good food in the top restaurant of the Riksbank, typing all the interviews, editing and checking them, asking for clarification, in one case we redid the whole interview, in another case we were refused an interview. (I offered in 2008 – 20 years later – to do the interview).

We were at least two economists present all the time.

Interviewing decision-makers

The design of the questions is important. We sent them in advance. We tried to have identical sets for the Riksbank staff.

The role of the interviews? Can you trust oral history?

Yes, if carefully combined with other sources and referred to as ”interviews”.

Large differences across the persons interviewed.

Sometimes better to interview several at a time. Group dynamics.

All interviews are now in the archives of the Riksbank.

Preparatory steps:

Text analysis

My idea: scan central Riksbank documents like the annual reports to the Riksdag etc and then study the frequency of key words like full employment, growth, stable price level, inflation, money supply, credit, interest rates, balance of payments, national income, over time.

The purpose of the text analysis was to reveal how the ”Weltanschaung” of the Riksbank had evolved.

This did not work, at least not in 1990.

Preparatory steps:

The role of econometrics

An econometric history of the Riksbank?

No, for several reasons.

1. Unreadable volume2. Out of date before it is being published3. The Riksbank staff was sceptical4. Impossible task – you cannot catch the long run

evolution of monetary policy by econometric techniques, lack of data, role of personalities, learning processes etc.

Preparatory steps: The role of theory?

A history of the Riksbank based on one single theoretical approach? No, for several reasons.

1. Unreadable volume for many2. Which theory would be the best to use?3. The Riksbank staff was sceptical. (”We never believed

in any theory or acted according to any theory”.)4. You cannot catch all the aspects of the long run

evolution of monetary policy in one theory – you need to rely on different approaches.

5. Special studies are more suitable to organize as tests of explicit theories.

My vision when I started the project:

Focus on the interaction between the Riksbank and ”the rest of the world”.

Put the Riksbank firmly into the Swedish setting.

It was relatively easy to do this as we were writing the modern history of the Riksbank

See Chart in PM 16 of 1989.

The Riksbank the political power game

The Riksbank in the political power game 1945-1990 (A stylized view)

7. THE ECONOMISTS

(AT UNIVERSITIES AND BANKS)

THERIKSBANK

5. LENDERS(SAVERS)

3. RIKSDAGEN(PARLIAMENT)

4. BORROWERS- HOUSING

- INDUSTRY- AGRICULTURE

1. COMMERCIAL BANKS

12. REMAINDER:SOU

”REMISS”UNIONS ETC

11. OTHER FINANCIAL

INSTITUTIONS(INSURANCE)

10. THE ”MARKET”(CLUB OF

BILLIONAIRES)

9. NATIONAL DEBT OFFICE, THE AP-

FUND (NATIONAL PENSION SYSTEM)

6. INTERNATIONALORGANISATIONSBIS, IMF, OECD,

ETC

2. MINISTRY OF FINANCE

(GOVERNMENT)

8. THE PRESSMEDIA, RADIO, TVSPEECHES ETC

Every arrow in this chart could be the subject of a thesis – a special study

And they still are

I focused on arrow number 1

The relationship between the Riksbank and the commercial banks

Monetary Policy-Making in a Financially Regulated Economy: the Case of Sweden during the Bretton Woods System.

The Monthly Meetings between the Riksbank and the Commercial Banks, 1956-73.

A unique data base of protocols describing word by word the arguments presented.

OPEN MARKET OPERATIONS VERSUS

OPEN MOUTH OPERATIONS

Two sets of minutes:

1. Pre-meeting discussion among the commerical bankers. Discussing expected moves by the Riksbank and ”best” response as well as counter-attacks

2. The actual meeting with the Riksbank

The source material (a puzzle to get it together)

Why was the system of meetings accepted?

The meetings started from the governor of the Riksbank commenting on the most recent balance sheet of the complete banking system as well as of every ingle commercial bank.

It was like a school-teacher checking the lessons of students

The Riksbank's behavior

The intermediate goals of the Riksbank. Controlling commercial bank lending plus controlling interest rates.

The instruments of the Riksbank during the regulatory cycle

Phase I. Riksbank warnings and threats.

Phase II. The Riksbank's orders and sanctions.

Phase III. The Riksbank's exhortations.

Other Riksbank tactics against the commercial banks

Stern attitude.

Demands for explanations.

The Riksbank's restrictions: the construction program

The behavior of the commercial banks

1. The preparations by the commercial banks2. The defense of the commercial banksLoyalty and goodwill.Defence arguments.

Criticisms and counter-proposals of the commercial banksThe banks' criticisms of fiscal policy.The Riksbank's reaction.The banks' claim for equal treatment.

Other issues raised in the meetings:

1. Evasion of controls. Bank guarantees and the gray market. Off balance-sheet developments

2. Relations with the press

3. The meetings as a bargaining process

4. The clash of personalities and class.

(A Social Democratic Governor of the Riksbank from humble circumstances versus the Wallenbergs and sophisticated commerical bankers.)

How should the minutes be analyzed?

Game theory? No!

Problem with our project:

We got too much text. • So Bengt Dennis – the governor of the Riksbank - said:

You get 400 printed pages, that is it. • (Typical old-fashioned Riksbank rationing!) • I had at least 500 pages of my one, about 20-30 reports

+ many interviews + subcontracted reports.• But the restriction remained binding.

The preface was signed by Lars Werin

Stockholm August 15, 1992.

(a few weeks before the banking and currency crisis broke out)

And published in the spring of 1993 – in the midst of the depression

The press release in May 1993

What did it say?

Secret protocols throw new light on the actions of the Riksbank during the postwar period

I did a ”follow-up” of the Riksbank history 10 years later:

På jakt efter ett nytt ankare (Searching for a new anchor), SNS 2003

The aim of the book: To give an account of the move to inflation targeting in the 1990s. ”Instant history” I wanted to get the witnesses at the scene of the crime.

Contributions by a Riksbank staff member, three governors of the Riksbank, an under-secretary of the ministry of finance, a prime minister, a chief economist of a commerical bank.

Introducton by me as editor. Difficult task as I had been involved in the policy process from the inside of the Prime Minister’s office 1992-94...

Lessons from this experience?

The book covers a dramatic and traumatic phase in Swedish monetary history.

When policy-makers write monetary history, there is a risk that they write history in a way that promotes their personal agenda, giving them the position in history that

they feel they deserve.

This risk proved well worth taking.

My view: It is a good book

but it was a challenge to edit

Lessons from Sweden for Norway:

1. Target the average member of Parliament and/or the interested layman

(In this way, you target the media, other social sciences and non-monetary economists)

Lessons from Sweden for Norway:

2. Publish in Norwegian and in English

(to publish just in Norwegian (or in Swedish) is like writing in the sand)

Lessons from Sweden for Norway:

3. Aim at “verstehen” – explaining why policy-makers acted the way they did.

Avoid handing out “grades”. Stress the informational uncertainty facing policy-makers. Try to describe their mind-sets and incentive-structures and learning

processes of policy-makers.

Lessons from Sweden for Norway:

4. Aim at one main story, complemented with “special studies”, boxes, appendices etc.

(Make frequent use of charts to make the story exciting - at least three per chapter)

Lessons from Sweden for Norway:

5. Use a general narrative approach – avoid “fads”, that is anything that will be out of fashion 10 years from now.

Lessons from Sweden for Norway:

6. Focus on the interaction between Norges Bank (the central bank) and “the rest of Norway”, demonstrating the relevance of monetary policy for the evolution of Norway.

Lessons from Sweden for Norway:

7. Make the writing of the history of the central bank an interactive process – where possible.

Use interviews of policy-makers. Involve actors in the financial and political system to comment on your text and conclusions. Test your results on them. Be humle: they know a lot that you as researcher do

not know.

Lessons from Sweden for Norway:

8. Look beyond 2016. Leave a solid archive after you.

Start planning for the 250 year anniversary of Norges bank in 2066.

Be forward-looking. Monetary history is an ever expanding field.

How to write the history of the Riksbank

8 lessons for Norway from Sweden

Lars Jonung, DG ECFINOctober 31, 2008

Workshop on

Writing Central Bank and Monetary History – what are the issues?

Organizers: The Graduate Institute, Geneva, and Norges Bank30-31 October, Geneva

Norges Bank’s bicentenary project 1816-2016