On Central Banking In these six lectures given at the Norwegian Royal Academy of Science and Letters, Jan Fredrik Qvigstad draws on his deep experience at Norges Bank to outline key principles on which to base central bank policy The first two lectures (about keeping promises and transparency) emphasize the importance of credibility and ensuring accountability Lectures 3–6 can be viewed as applying these key principles to specific issues (making good decisions, managing wealth, learning from history, and institutions) The lectures not break new ground – indeed, Qvigstad nicely illustrates how these principles have been articulated in literature, history, and politics Rather, the lectures emphasize the lessons to be learned by applying these principles to central banking history with primary reference to the case of Norway, such as managing Norway’s sovereign wealth fund and designing institutions that will produce good policy outcomes Jan Fredrik Qvigstad (born 1949) was Deputy Governor and Deputy Chair of the Executive Board of Norges Bank 2008–2014 From 1997 he was Chief Economist of Norges Bank He is now the Executive Director, General Staff, at Norges Bank with the responsibility for the bank's economic history project Downloaded from https:/www.cambridge.org/core Univ of Pittsburgh, on 04 May 2017 at 11:04:49, subject to the Cambridge Core terms of use, available at https:/www.cambridge.org/core/terms https://doi.org/10.1017/CBO9781316584682 Advance Praise for On Central Banking “Jan Fredrik Qvigstad’s On Central Banking revives European essay writing in the tradition of Michel de Montaigne or David Hume The lectures, collected in this volume, reflect a very well-read author and a lifetime of experience At the same time, they read like letters from a wise friend who says: ‘I have tried it and it worked well for me.’” Vitor Gaspar, Director of Fiscal Affairs Department, International Monetary Fund “On Central Banking is a highly entertaining and insightful collection of lectures that will appeal not only to those interested in central banks, but also to a wide audience of regulators, politicians, church leaders, and others Drawing on history, academic theories from various subjects, and the author’s own experiences, this is a fascinating discussion of what makes for effective and legitimate institutions.” Anne Sibert, Professor of Economics, Birkbeck, University of London Downloaded from https:/www.cambridge.org/core Univ of Pittsburgh, on 04 May 2017 at 11:04:49, subject to the Cambridge Core terms of use, available at https:/www.cambridge.org/core/terms https://doi.org/10.1017/CBO9781316584682 STUDIES IN MACROECONOMIC HISTORY Series Editor: Michael D Bordo, Rutgers University Editors: Owen F Humpage, Federal Reserve Bank of Cleveland Christopher M Meissner, University of California, Davis Kris James Mitchener, Santa Clara University David C Wheelock, Federal Reserve Bank of St Louis The titles in this series investigate themes of interest to economists and economic historians in the rapidly developing field of macroeconomic history The four areas covered include the application of monetary and finance theory, international economics, and quantitative methods to historical problems; the historical application of growth and development theory and theories of business fluctuations; the history of domestic and international monetary, financial, and other macroeconomic institutions; and the history of international monetary and financial systems The series amalgamates the former Cambridge University Press series Studies in Monetary and Financial History and Studies in Quantitative Economic History Other books in the series: Michael D Bordo, Øyvind Eitrheim, Marc Flandreau, and Jan F Qvigstad, Editors, Central Banks at a Crossroads: What Can We Learn from History? (2016) Michael D Bordo and Mark A Wynne, Editors, The Federal Reserve’s Role in the Global Economy: A Historical Perspective (2016) Owen F Humpage, Editor, Current Federal Reserve Policy Under the Lens of Economic History: Essays to Commemorate the Federal Reserve System’s Centennial (2015) Michael D Bordo and William Roberds, Editors, The Origins, History, and Future of the Federal Reserve: A Return to Jekyll Island (2013) Downloaded from https:/www.cambridge.org/core Univ of Pittsburgh, on 04 May 2017 at 11:04:49, subject to the Cambridge Core terms of use, available at https:/www.cambridge.org/core/terms https://doi.org/10.1017/CBO9781316584682 Michael D Bordo and Ronald MacDonald, Editors, Credibility and the International Monetary Regime: A Historical Perspective (2012) Robert L Hetzel, The Great Recession: Market Failure or Policy Failure? (2012) Tobias Straumann, Fixed Ideas of Money: Small States and Exchange Rate Regimes in Twentieth-Century Europe (2010) Forrest Capie, The Bank of England: 1950s to 1979 (2010) Aldo Musacchio, Experiments in Financial Democracy: Corporate Governance and Financial Development in Brazil, 1882–1950 (2009) Claudio Borio, Gianni Toniolo, and Piet Clement, Editors, The Past and Future of Central Bank Cooperation (2008) Robert L Hetzel, The Monetary Policy of the Federal Reserve: A History (2008) Caroline Fohlin, Finance Capitalism and Germany’s Rise to Industrial Power (2007) John H Wood, A History of Central Banking in Great Britain and the United States (2005) Gianni Toniolo (with the assistance of Piet Clement), Central Bank Cooperation at the Bank for International Settlements, 1930–1973 (2005) Richard Burdekin and Pierre Siklos, Editors, Deflation: Current and Historical Perspectives (2004) Pierre Siklos, The Changing Face of Central Banking: Evolutionary Trends since World War II (2002) Michael D Bordo and Roberto Cortés-Conde, Editors, Transferring Wealth and Power from the Old to the New World: Monetary and Fiscal Institutions in the 17th through the 19th Centuries (2001) Howard Bodenhorn, A History of Banking in Antebellum America: Financial Markets and Economic Development in an Era of NationBuilding (2000) Mark Harrison, Editor, The Economics of World War II: Six Great Powers in International Comparison (2000) Angela Redish, Bimetallism: An Economic and Historical Analysis (2000) Elmus Wicker, Banking Panics of the Gilded Age (2000) Continued after Index Downloaded from https:/www.cambridge.org/core Univ of Pittsburgh, on 04 May 2017 at 11:04:49, subject to the Cambridge Core terms of use, available at https:/www.cambridge.org/core/terms https://doi.org/10.1017/CBO9781316584682 On Central Banking —— ✤ —— Jan Fredrik Qvigstad Downloaded from https:/www.cambridge.org/core Univ of Pittsburgh, on 04 May 2017 at 11:04:49, subject to the Cambridge Core terms of use, available at https:/www.cambridge.org/core/terms https://doi.org/10.1017/CBO9781316584682 One Liberty Plaza, New York NY 10006 Cambridge University Press is part of the University of Cambridge It furthers the University’s mission by disseminating knowledge in the pursuit of education, learning, and research at the highest international levels of excellence www.cambridge.org Information on this title: www.cambridge.org/9781107150973 © Norges Bank 2016 This publication is in copyright Subject to statutory exception and to the provisions of relevant collective licensing agreements, no reproduction of any part may take place without the written permission of Cambridge University Press First published 2016 Printed in the United Kingdom by Clays, St Ives plc A catalogue record for this publication is available from the British Library Library of Congress Cataloging in Publication Data Names: Qvigstad, Jan Fredrik, author Title: On central banking / Jan Fredrik Qvigstad Description: Edition | New York : Cambridge University Press, 2016 | Series: Studies in macroeconomic history | “Contains six lectures given at the Norwegian Academy of Science and Letters.” | Includes bibliographical references and index Identifiers: LCCN 2016000902 | ISBN 9781107150973 (Hardback) Subjects: LCSH: Banks and banking, Central | Transparency in international agencies | Monetary policy | Trust Classification: LCC HG1811 Q85 2016 | DDC 332.1/1–dc23 LC record available at http://lccn.loc.gov/2016000902 ISBN 978-1-107-15097-3 Hardback Cambridge University Press has no responsibility for the persistence or accuracy of URLs for external or third-party Internet Web sites referred to in this publication and does not guarantee that any content on such Web sites is, or will remain, accurate or appropriate Downloaded from https:/www.cambridge.org/core Univ of Pittsburgh, on 04 May 2017 at 11:04:49, subject to the Cambridge Core terms of use, available at https:/www.cambridge.org/core/terms https://doi.org/10.1017/CBO9781316584682 To my wife Nina and children Maria Céline and Lars Fredrik Downloaded from https:/www.cambridge.org/core Univ of Pittsburgh, on 04 May 2017 at 11:04:51, subject to the Cambridge Core terms of use, available at https:/www.cambridge.org/core/terms https://doi.org/10.1017/CBO9781316584682 Downloaded from https:/www.cambridge.org/core Univ of Pittsburgh, on 04 May 2017 at 11:04:51, subject to the Cambridge Core terms of use, available at https:/www.cambridge.org/core/terms https://doi.org/10.1017/CBO9781316584682 Contents Foreword page xi Michael D Bordo Preface xxix On Keeping Promises On Transparency 32 On Making Good Decisions 67 On Managing Wealth 97 On Learning from History: Truths and Eternal Truths 124 On Institutions: Fundamentals of Confidence and Trust 156 About the Authors 191 Index 195 — ✤ ix ✤ — Downloaded from https:/www.cambridge.org/core Univ of Pittsburgh, on 04 May 2017 at 11:04:49, subject to the Cambridge Core terms of use, available at https:/www.cambridge.org/core/terms https://doi.org/10.1017/CBO9781316584682 Downloaded from https:/www.cambridge.org/core Univ of Pittsburgh, on 04 May 2017 at 11:04:49, subject to the Cambridge Core terms of use, available at https:/www.cambridge.org/core/terms https://doi.org/10.1017/CBO9781316584682 About the Authors Skånland), co-edited with Sigbjørn Atle Berg and Kjell Storvik, 1994; Choosing a Monetary Policy Target, co-edited with Anne Berit Christiansen, 1997; Perspektiver på pengepolitikken (Perspectives on monetary policy), co-edited with Øistein Røisland, 2000; Twenty Years of Inflation Targeting: Lessons Learned and Future Prospects, co-edited with David Cobham, Øyvind Eitrheim, and Stefan Gerlach; and Central Banks at a Crossroads: What Can We Learn from history?, co-edited with Michael D Bordo, Marc Flandreau, and Øyvind Eitrheim — ✤ 193 ✤ — Downloaded from https:/www.cambridge.org/core Univ of Pittsburgh, on 04 May 2017 at 11:12:14, subject to the Cambridge Core terms of use, available at https:/www.cambridge.org/core/terms https://doi.org/10.1017/CBO9781316584682 Downloaded from https:/www.cambridge.org/core Univ of Pittsburgh, on 04 May 2017 at 11:12:14, subject to the Cambridge Core terms of use, available at https:/www.cambridge.org/core/terms https://doi.org/10.1017/CBO9781316584682 Index Acemoglu, Daron, xxii–xxiv, 159–162 Alaska Permanent Fund, 106–107 Andenæs, Johs, 161–162n.8 An Enemy of the People (Ibsen), 125–126 Argentina, inflation in, 170–171n.21 Astrup, Hans Rasmus, 1–5, 67–69, 95 Aukrust, Odd, 76n.15 austerity programs, political costs of, 145–146n.20 Bagehot, Walter, xvi–xvii balanced budget paradigm economic theory and, 129–131, 141–142 long-term economic strategies based on, 145–146n.20 banking industry government bailouts of, 136–137n.10 historical perspectives on, 133–137 institutional function of, 162–164 lending policies in, 142–144 speculative bubbles and, 150–151n.24 banknote issuance historical perspective on, 150–151n.24 seignorage and, 6–10 Bank of England establishment of, 165–166 history of stability, 34, 64–66 interest rate decision making in, 85–86 monetary policy of, 50–51 transparency in, 55–56n.40 Banque Royale, 150–151n.24 Bardot, Brigitte, 106 Basel Committee on Banking Supervision, 137 Baustad, Ingeborg, 80–81 Berge, Abraham, 57–58 Berge, Gunnar, 185–187 Bergo, Jarle, 61–62n.52 Bernanke, Ben, 152–155 Bislett Stadium, 60–61 Bjerve, Petter Jacob, 37n.7 Blinder, Alan, 50–51, 79–80 Bloomberg LP, 58n.45 Bohr, Niels, 38–39 Bomhoff, Karl, 178–180 — ✤ 195 ✤ — Downloaded from https:/www.cambridge.org/core University of Florida, on 04 May 2017 at 11:14:32, subject to the Cambridge Core terms of use, available at https:/www.cambridge.org/core/terms https://doi.org/10.1017/CBO9781316584682 Index bond markets gold clause and, 20–22 wealth maximisation and, 114–118 Bordo, Michael D., xi–xxvii, 138n.13 Bretton Woods Agreement, 15–16 collapse of, 17–20, 183–184 British Academy Forum, 72 Brofoss, Erik, xxiv–xxvii, 74–75n.13, 106, 183–184 Brundtland, Gro Harlem, 185–187 Bubble Act, 150–151n.24 Bundesbank, 169n.20 business cycles, economic policies and fluctuations in, 140–141, 147–149 Bye, Torstein, 104–106 capitalism, institutions and role of, 156–158n.2 Cappelen, Ådne, 104–106 Cavallo, Alberto, 170–171n.21 central banks autonomy for, 23–24 communication skills and, 58–61 confidence mechanisms of, 174–175n.26 credibility of, xiii–xv decision making by, xvii–xix, 49–50 financial sector innovations by, 172n.23 future challenges for, 187–189 global financial crisis and, 29–31 historical perspective on legacy of, 149–151 inclusive vs extractive institutions, xxii–xxiv independent decision making by, 69–70 institutional value of, 173–187 secrecy vs transparency for, 32–36 transparency of, xvi–xvii, 32–36, 43–46, 49–58 civil society, institutions and, 162–164 clarity in communication, transparency and, 58–61 coins historical perspective on, 150–151n.24 monetary systems and, 167–171 value of money and metal value of, 6–10 Collett, John, 97–99, 121–123 Committee on the Future of Petroleum Activity, 103–104 communication group decision making and, 80–81 transparency and art of, 58–61 Compagnie d’Occident, 150–151n.24 compulsory military service, as social institution, 165n.13 conclusion-based decision making, 86–89 Condorcet, Marquis de, 78–79 confidentiality, transparency vs., 32–36 Constitutional Convention (1787, U.S.), 53–54 constructive ambiguity, transparency and, 56–57 consumer price index, inflation targeting and, 25–26n.33 consumption patterns, wealth management and, 100–102, 111–112 continental drift theory, 126–128n.2 cost-of-living index, manipulation of, 171n.22 — ✤ 196 ✤ — Downloaded from https:/www.cambridge.org/core University of Florida, on 04 May 2017 at 11:14:32, subject to the Cambridge Core terms of use, available at https:/www.cambridge.org/core/terms https://doi.org/10.1017/CBO9781316584682 Index counterfactual analyses, decision making and, 92–93 credibility of monetary system commitment to promises and, xiii–xv, 1–5 mediocrity and, xxiv–xxvii modern monetary policy and, 22–29 stable value of money and, 10–13 time inconsistency problem and, 145–146n.20 transparency and, xvi–xvii, 64–66 criminal law guilt principles in, 90–91n.35 institutions and, 161–162n.8 cross-border capital flow, 23 currency reforms monetary stability and, 169n.20 Norges Bank policies and, 180–181 current account deficits, economic policy and, 142–144 decision making by central banks, xvii–xix conclusion-based decision making, 86–89 evaluation of decisions, 89–93 future challenges concerning, 93–96 group-based vs individual decisions, 76–81 independence as framework for, 69–70 limitations of group-based decision making, 82–86 premise-based decision making, 86–89 time inconsistencies in economics and, 144–147 transparency as inhibitor of, 52–53 uncertainty in, 71–76 deficits, historical perspectives on, 131–133, 142–144 democracy, transparency and, 38–46 deregulation currency reform and, 169n.20 modern monetary policy and, 23 De Soto, Hernando, 158n.3 disclosure requirements market liberalisation and, 36–38 monetary policy and, 43–46 distance judgment, uncertainty in decision making and, 72–76 Draghi, Mario, 152–155 Duisenberg, Wim, 47–48 “Dutch Disease,” 106–107 wealth management and, xix–xx economic crises central bank policies and, 29–31, 56–57 in French Revolution, 150–151n.24 historical perspectives on, 128–138, 152–155 oil wealth dependency and, 110 pendulum swing model for, 138n.13 regulatory failure linked to, 36–38 repeated truths of, 139–151 resource curse and, 106–107 transparency and, 64–66 economic policy historical perspectives on, 128–138, 152–155 institutions and, 156–166 interwar turbulence and changes in, 13–22 Maastricht criteria and, 142 monetary policy and, 39–43 — ✤ 197 ✤ — Downloaded from https:/www.cambridge.org/core University of Florida, on 04 May 2017 at 11:14:32, subject to the Cambridge Core terms of use, available at https:/www.cambridge.org/core/terms https://doi.org/10.1017/CBO9781316584682 Index economic policy (cont.) time inconsistency problem and, 145–146n.20 transparency of, 36–38 wealth management and, 121–123 economic theory cyclical trends in, 140–141 global financial crisis of 2007 and limits of, 146n.21 history and, 124–128, 152–155 mathematics and, 124–125 repeated truths in, 139–151 resource curse and, 106–107 time inconsistency problem and, 144–147 transparency in, 46–49 wealth management and, 104–106 effective communication, transparency and, 58–61 Eika, Torbjørn, 104–106 Einstein, Albert, 126–128n.2 Elster, Jon, xiii–xv, 1–5, 53–54 EMU price stabilization, 24n.32 environmental issues, wealth management and, 118–121 equity ownership, wealth maximisation and, 114–118 Erhard, Ludwig, 169n.20 ethical issues, wealth management and, 118–121 euro area “Fiscal Compact” of, 144–147 monetary policies and, 70n.4 European Central Bank (ECB), monetary policies of, 50–51 Eurosystem, fiscal policies of, 145–146n.20 exchange, alternative means of, 167–171 expectations, transparency in monetary policy and, 46–49, 64–66 extractive institutions, xxii–xxiv, 159–162 Falsen, Christian Magnus, 53–56 Federal Open Market Committee (FOMC), 33n.2 Federal Reserve lack of fiscal discipline in, 17–20 pressures for transparency on, 58n.45 transparency, 32–36 financial crises See economic crises financial stability, transparency and, 57–58 “Fiscal Compact” of euro area, 144–147 fixed exchange rate collapse of, 26–27 departure from, 17–20 economic policy and, 39–43 establishment of, 15–16 research concerning, 26n.34 foreign assistance, as long-term investment, 118–121 foreign securities, wealth investment in, 117–118 France central banks in, 149–151 gold clause case and, 20–22 speculative bubbles in, 150–151n.24 Freedom of Information Act 1970 (Norway), 33n.2, 36–38, 44 — ✤ 198 ✤ — Downloaded from https:/www.cambridge.org/core University of Florida, on 04 May 2017 at 11:14:32, subject to the Cambridge Core terms of use, available at https:/www.cambridge.org/core/terms https://doi.org/10.1017/CBO9781316584682 Index free market forces, economic crises and, 36–38 French Revolution, financial crisis during, 150–151n.24 Frisch, Ragnar, xx–xxii, 36–38, 130–132, 140–141 Gerding, Erik F., 138n.13 Gjelsvik, Eystein, 104–106 glasnost, 38–39 Glass-Steagall Act, 133–137 global financial crisis of 2007 central bank credibility and, 29–31, 56–57 economic policy in wake of, 140–141 limits of economic theory and, 146n.21 oil revenue declines during, 113 unforeseeability of, 72 Glorious Revolution (England, 1688), xxii–xxiv, 165–166 gold clause (“Gullklausulsaken”), 20–22 gold standard fixed exchange rate and, 15–16 parity policy and, 25–26n.33, 180 stable value of money and, 10–13, 178–180 Gorbachev, Mikhail, 38–39 government institutions bank bailouts and, 136–137n.10 credibility of central banks and, xiii–xv economic policy and impact of, 156–166, 183–184 independent interest rate decisions and, 69–70 petroleum revenue spending by, 104–106 role in economic policy of, 130–132 secrecy vs transparency in, 53–54 “Government in the Sunshine Act” (U.S.), 52–53 Government Pension Fund – Global, 61–64, 97–99, 113, 121–123 Great Depression, economic policy and, 129–131 Great Inflation period, 17–20 Great Moderation, xx–xxii, 131–133 Greenspan, Alan, xvi–xvii, 58–61, 71, 147–149 Gregory, T E., 55–56n.40 gross domestic product (GDP) current account deficits and, 142–144 investment in Norwegian economy as percentage of, 111–112 group-based decision making individual decisions vs., 76–81 limitations of, 82–86 groupthink, 82n.25 Haavelmo, Trygve, 106–107 Haldane, Andrew, 136–137n.10, 141–142 Harvey, Ernest (Sir), 55–56n.40 Hegge, Per Egil, 63n.54 Henry VII (King of England), 167–171 Henry VIII (King of England), 6–10, 20–22, 167–171 Hess, Harry, 126–128n.2 — ✤ 199 ✤ — Downloaded from https:/www.cambridge.org/core University of Florida, on 04 May 2017 at 11:14:32, subject to the Cambridge Core terms of use, available at https:/www.cambridge.org/core/terms https://doi.org/10.1017/CBO9781316584682 Index heuristics, economic decision making and, 144n.19 history economic theory and, 124–128 financial and economic lessons of, 152–155 of institutions, 162–164 of monetary system, 166–173 repeated truths in, 139–151 honesty, transparency and, 58–61 Ibsen, Henrik, 125–126 Iceland, financial crisis in, 29–31 immigration patterns, institutions and, 163n.10 inclusive institutions, xxii–xxiv, 159–162 incomes-policy, wage growth and, 36–38 index manipulation, research on, 171n.22 individual decision making, groupbased decision making vs., 76–81 inflation Argentinian case study of, 170–171n.21 current financial crisis and, 29–31 global financial crisis of 2007 and targeting of, 146n.21 historical perspectives on, 131–133, 150–151n.24 monetary and, 39–43 politics and, 17–20 seignorage and, 6–10, 167–171 targeting of, 24–29, 185–187 unemployment and, 16–17 inflation tax, in monetary systems, 167–171 institutions basic concepts of, 156–166 central banks as, 173–187 educational institutions, 164–165 future challenges for, 187–189 inclusive vs extractive institutions, xxii–xxiv, 159–162 monetary system as, 166–173 nation-building and role of, 162–164 natural state vs open access societies, 159–160n.7 wealth management and role of, 103–108 intent, in criminal law, 90–91n.35 interest rates assessment equations for, 61–62n.52 forecasting and expectations concerning, 46–49 global financial crises and, 147–149 independent decision making on, 69–70, 185–187 inflation targeting and, 27–28 price stability and, 39–43 intergenerational saving, wealth management and, 100–102 International Monetary Fund (IMF), 131–133 currency devaluations and, 74–75n.13 investment, oil wealth and economic cost of, 111–112 Jahn, Gunnar, 74–75n.13 Janis, Irving L., 82n.25 jury theorem, decision making and, 78–79 — ✤ 200 ✤ — Downloaded from https:/www.cambridge.org/core University of Florida, on 04 May 2017 at 11:14:32, subject to the Cambridge Core terms of use, available at https:/www.cambridge.org/core/terms https://doi.org/10.1017/CBO9781316584682 Index Kahneman, Daniel, 144n.19 Keynes, John Maynard, 16–17, 55–56n.40 historical perspectives on, 130–132 market control policies and, 36–38 Keynesian paradigm, 16–17 financial crises and limits of, 140–141 historical legacy of, xx–xxii strengths and limits of, 139 key policy rate global financial crisis of 2007 and, 147–149 independent decision making concerning, 72–76 Norges Bank establishment of, 32–36 Khaldûn, Ibn, 158–159n.4 King, Mervyn, 152–155 Kjeserud, Ragnar, 64–66 Kołakowski, Leszek, 161–162n.8 Kuhn, Thomas, xx–xxii, 125–126 Kydland, Finn, xiii–xv, 1–5, 22, 69–70, 174–175n.26 L (Loe), 76–78 labour productivity, wealth management and, 104–106 Law, John, 149–155 law enforcement institutions, economic policy and, 161– 162n.8 Lehman Brothers collapse, 147–149 Loe, Erlend, 76–78 long promise central bank credibility and, xiii–xv, 177–178, 185–187 inclusive vs extractive institutions and, xxii–xxiv long return paradigm inclusive vs extractive institutions and, xxii–xxiv mediocrity and, xxiv–xxvii long-term investment, wealth management and, 118–121 Lunden, Kåre, 10–13 Maastricht criteria, 70n.4, 142 “Fiscal Compact” of euro area and, 144–147 Macmillan committee, 55–56n.40 macroeconomics global financial crisis and, 147–149 Keynesian paradigm and, xx–xxii Madison, James, 53–54 managed economy, theory of, 130–132 mantle dynamics, 126–128n.2 market policies communication skills and, 59n.48 historical perspectives on, 130–132 transparency in, 36–38 Marxism, role of institutions, 161–162n.8 Mboweni, Tito, 121 mediocrity, central bank credibility and, xxiv–xxvii Mehlum, Halvor, 158–159n.4 Merrill, David R., 33n.2 Mississippi Company, 150–151n.24 Moene, Kalle, 158–159n.4 monetary policy central bank role in, 149–151, 183–184 credibility of central banks and, xiii–xv economic policy and, 39–43 euro area and, 70n.4 evaluation of, 89–93 — ✤ 201 ✤ — Downloaded from https:/www.cambridge.org/core University of Florida, on 04 May 2017 at 11:14:32, subject to the Cambridge Core terms of use, available at https:/www.cambridge.org/core/terms https://doi.org/10.1017/CBO9781316584682 Index monetary policy (cont.) financial sector innovations and, 172n.23 historical perspectives on, 128–138 inflation targeting and, 27–28 international comparisons of central banks on, 50–51 interwar turbulence in, 13–22 modern practices and promises, 22–29 payment systems innovations and, 172–173 stable value of money and, 10–13 surprise as element of, 19n.24, 22n.29 timeless perspective in, 28–29, 174–175n.26 transparency in, 43–46 Monetary Policy Report, 45, 49–50 monetary system, as institution, 166–173 money supply anonymity of payments in, 173n.25 modern payment systems, 172–173 stable value of money and, 10–13 targeting of, 26n.34 monopolies, decision making and impact of, 88–89 Morgan, John, 79–80 mortgage-backed securities, 133–137 Munthe, Preben, 35 Myhra, Turid, 164–165 Myhre, Jan Eivind, 162–164 The Mystery of Capital (de Soto), 158n.3 Napoleonic Wars inflation and, 167–171 seignorage during, 6–10 National Insurance Scheme (Norway), 108 nation-building, institutions and, 159–162 natural resources, economic growth and, 106–107 natural sciences, theory and experiments in, 126–128n.2 natural state institutions, 159–160n.7 negligence, in criminal law, 90–91n.35 Newton, Isaac, 126–128n.2 New Zealand, inflation targeting policy in, 24 Nissen, Friedrich Georg, xx–xxii, 129–131, 139–140n.14, 141–142 Nixon, Richard, 17–20, 23 Norges Bank appointment requirements for Executive Board, 84–85n.28 confidentiality obligations of, 33n.2 decision making process at, 86–89 Executive Board of, 49–50, 81 fiscal policies of, xx–xxii historical credibility of, xiii–xv history of, 173–187 impact of decisions by, xvii–xix institutional function of, 173–187 interest rate policies of, 27–28 key policy rate of, 32–36 limitations of group decision making in, 82–86 — ✤ 202 ✤ — Downloaded from https:/www.cambridge.org/core University of Florida, on 04 May 2017 at 11:14:32, subject to the Cambridge Core terms of use, available at https:/www.cambridge.org/core/terms https://doi.org/10.1017/CBO9781316584682 Index Norwegian currency devaluations and, 74–75n.13 pension fund management by, 61–64 reporting obligations of, 24n.31 tax-financed silver fund, 12–13 transparency of, xvi–xvii, 43–46 wealth management and, xix–xx Norges Bank Act (1985), 23–24, 44–45n.22 “Norges Bank Watch,” 88–89 North, Douglas C., 157n.1, 159–160n.7 North Rock Bank, 56–57 North Sea oil fields future challenges facing, 121–123 wealth management and, 108 Norway currency devaluation in, 89–93, 74–75n.13 history of central banks in, 173–187 impact of central bank decisions in, xvii–xix investment of oil wealth in, 108–112 Norwegian Academy of Science and Letters, 95 Norwegian Sovereign Wealth Fund, xix–xx, 108 oil wealth equity investment and, 114–118 institutional challenges to management of, 103–108 investment and, 108–112 management of, 97–99 ownership of, 100–102 Olsen, Øystein, 104–106 Olympiatoppen, 95 OPEC countries, oil wealth in, 108–112 open access societies, 159–160n.7 organisational psychology economic theory and, 156–158n.2 group decision making and, 80–81 paper money historical perspectives on, 152–155 speculative bubbles and, 150–151n.24 value of, 6–10 paradigm shifts economic theory and, 125–126 historical perspectives on, 128–138 parity policy inflation targeting vs., 24–29 introduction of, 13–22 legacy of, 181–182 “par” policy of gold convertibility, xxii–xxiv par value of money interwar era turbulence and, 13–22 silver standard and, 12–13 Paye, Jean-Claude, 159n.5 payment systems anonymity of money and, 173n.25 innovations in, 172–173 pendulum swings, economic crises and, 138n.13 pension reform, historical perspectives on, 145–146n.20 Phillips, A W., 16–17 Phillips curve, 16–17 plate tectonics theory, 126–128n.2 — ✤ 203 ✤ — Downloaded from https:/www.cambridge.org/core University of Florida, on 04 May 2017 at 11:14:32, subject to the Cambridge Core terms of use, available at https:/www.cambridge.org/core/terms https://doi.org/10.1017/CBO9781316584682 Index politics economic policy and, 140–141 independent decision making and, 69–70 market liberalisation and, 36–38 voting rights in companies and, 118–121 Posen, Adam, 179n.31 premise-based decision making, 86–89 Prescott, Edward, xiii–xv, 1–5, 22, 174–175n.26 price indexes inflation targeting and, 24–29 scraping technology and analysis of, 170–171n.21 price stability, 10–13 central bank promise of, 23–24, 28–29, 174–175n.26 economic policy linked to, 185–187 historical perspectives on, 130–132 inflation targeting and, 17–20, 24–29, 185–187 monetary institutions and, 167–171 monetary policy and, 22–29, 89–93 scraping technology for pricing data and, 170–171n.21 PriceStats, 170–171n.21 Primary School Act, 164–165 promises of central banks commitment to, xiii–xv difficulty of keeping, 1–5 timeless perspective in, 28–29, 174–175n.26 property rights, economic growth and, 158n.3 Public Administration Act of 1967 (Norway), 36–38 public expenditure, oil revenue funding of, 104–106 Quinn, Stephen, 172n.23 real capital, wealth management and, 104–106 real estate, wealth management and, 117–118 regulatory regimes business cycles and fluctuations in, 147–149 economic crises and, 36–38 historical perspectives on, 133–137 pendulum swings and, 138n.13 Reinhart, Carmen, 140 relativity, theory of, 126–128n.2 rent-seeking, resource curse and, 106–107 resource curse institutions and, 158–159n.4 wealth management, 106–107 “return-free risk” principle, 117–118 return maximisation, wealth management and, 114–118 Rigobon, Roberto, 170–171n.21 risk-return tradeoff, wealth management and, 113 Robinson, J., xxii–xxiv, 159–162 Rogoff, Kenneth, 140 Rule of Four, xx–xxii Rygg, Nicolai, xiii–xv, xxii–xxiv, 128–129, 139–140n.14, 180–181 Sachs, Gunter, 106, 121–123 Sachs, Jeffrey, 106–107, 159n.5 Schelling, Thomas, xiii–xv, 1–5 — ✤ 204 ✤ — Downloaded from https:/www.cambridge.org/core University of Florida, on 04 May 2017 at 11:14:32, subject to the Cambridge Core terms of use, available at https:/www.cambridge.org/core/terms https://doi.org/10.1017/CBO9781316584682 Index scientific truth, economic theory and, 124–128 scraping technology, pricing data collection and, 170–171n.21 sea-floor spreading theory, 126–128n.2 seignorage revenues, 6–10 historical perspectives on, 149–151, 167–171 Sejersted, Francis, 44 Sibert, Anne, 81 silver standard Norwegian establishment of, 177–178 stable value of money and, 10–13 Skånland, Hermod, 35–38, 103–104 Skogstad Aamo, Bjørn, 41–42, 185–187 Slyngstad, Yngve, 117–118 Smith, Adam, 158–159n.4, 166–167 social institutions, 159–160n.7 social media, monetary policy transparency on, 45 Society of Jesus, 164n.11 South Sea Bubble, 150–151n.24 sovereign debt historical perspectives on, 131–133 history of, 150–151n.24 Spain, economic crisis in, 142–144 specie standard history of, xvi–xvii speciedaler, 12–13, 177–178 speculative bubbles, history of, 150–151n.24 speed limits, economic policy and, 144–147 stable value of money, central bank credibility and, 10–13, 28–29, 174–175n.26 state investment in Norway, oil revenues and, 108–112 Statens Reservefond (Government Reserve Fund), 117–118 Statistics Norway, 104–106 Steen, Johannes, 164–165 Storting (Norway), history of central bank and, 173–187 The Structure of Scientific Revolutions (Kuhn), 125–126 Supreme Court (Norway), transparency of, 53–56 Surowiecki, James, 78–79 Svensson, Lars, 61–62n.52 Sverdrup, Johan, 67–69 Sveriges Riksbank, 50–51, 85–86, 150–151n.24 Sydsæter, Knut, 124–125 Syse, Henrik, 100, 139 tax revenue, from petroleum sector, 104–106 Taylor, John, 26n.34 Theory of Moral Sentiments (Smith), 158–159n.4 Thormøhlen, Jørgen, 150–151n.24 time inconsistency problem balanced budget paradigm and, 145–146n.20 economic theory and, 144–147 Tjomsland, Steinar, 53–56 Torsvik, Trond Helge, 126–128n.2 Torvik, Ragnar, 110, 158–159n.4 transparency of central banks, xvi–xvii, 32–36, 43–46, 49–58 — ✤ 205 ✤ — Downloaded from https:/www.cambridge.org/core University of Florida, on 04 May 2017 at 11:14:32, subject to the Cambridge Core terms of use, available at https:/www.cambridge.org/core/terms https://doi.org/10.1017/CBO9781316584682 Index transparency (cont.) communication and, 58–61 decision making inhibited by, 52–53 democracy and, 38–46 of economic policy, 36–38 financial stability and, 57–58 future challenges and issues in, 61–64 modern economic theory concerning, 46–49 trust, institutions as enhancement of, 163n.10 “tying oneself to the mast” metaphor, central bank promises and, 1–5 “tying oneself to the mast” metaphors, 144–147, 174–175n.26 UBS Bank, 137n.11 Ulysses and the Sirens (Elster), 1–5 unanimous decision making, monetary policy of central banks and, 50–51 uncertainty, in decision making, 71–76 unemployment economic crises and rate of, 142–144 economic policy and management of, 130–132 inflation and, 16–17 United Kingdom currency devaluation in, 72–76, 89–93 Glorious Revolution in, xxii–xxiv, 165–166 gold convertibility in, 180n.33 Office for Budget Responsibility in, 145–146n.20 pound devaluation in, xvii–xix speculative bubbles in, 150–151n.24 value creation, resource curse and, 106–107 value of money, stability of, 1–5 Veblen, Thorstein, 158–159n.4 Vogel, Robert W., 157n.1 Vold, Jan Erik, 114–115 Wallis, John Joseph, 159–160n.7 Warner, Andrew, 106–107 wealth management examples of, 97–99 future challenges in, 121–123 institutional challenges to, 103–108 intergenerational saving and, 100–102 investment in Norway and, 108–112 long-term investment and, 118–121 Norges Bank and, xix–xx resource curse and, 106–107 return maximisation and, 114–118 risk-return tradeoffs in, 113 The Wealth of Nations (Smith), 166–167 Wegener, Alfred, 126–128n.2 Weingast, Barry R., 159–160n.7 Weisæth, Lars, 64–66 Who Wants to Be a Millionaire? (television game show), 78–79 Why Nations Fail (Acemoglu and Robinson), 159–162 The Wisdom of Crowds (Surowiecki), 78–79 Wold, Knut Gez, 183–184 Woodford, Michael, 28–29, 174–175n.26 — ✤ 206 ✤ — Downloaded from https:/www.cambridge.org/core University of Florida, on 04 May 2017 at 11:14:32, subject to the Cambridge Core terms of use, available at https:/www.cambridge.org/core/terms https://doi.org/10.1017/CBO9781316584682 Other books in the series (continued from page iv) Michael D Bordo, The Gold Standard and Related Regimes: Collected Essays (1999) Michele Fratianni and Franco Spinelli, A Monetary History of Italy (1997) Mark Toma, Competition and Monopoly in the Federal Reserve System, 1914–1951, (1997) Barry Eichengreen, Editor, Europe’s Postwar Recovery, 1996 Lawrence H Officer, Between the Dollar-Sterling Gold Points: Exchange Rates, Parity and Market Behavior (1996) Elmus Wicker, Banking Panics of the Great Depression (1996) Norio Tamaki, Japanese Banking: A History, 1859–1959 (1995) Barry Eichengreen, Elusive Stability: Essays in the History of International Finance, 1919–1939 (1993) Michael D Bordo and Forrest Capie, Editors, Monetary Regimes in Transition (1993) Larry Neal, The Rise of Financial Capitalism: International Capital Markets in the Age of Reason (1993) S N Broadberry and N F R Crafts, Editors, Britain in the International Economy, 1870–1939 (1992) Aurel Schubert, The Credit-Anstalt Crisis of 1931 (1992) Trevor J O Dick and John E Floyd, Canada and the Gold Standard: Balance of Payments Adjustment under Fixed Exchange Rates, 1871–1913 (1992) Kenneth Mouré, Managing the Franc Poincaré: Economic Understanding and Political Constraint in French Monetary Policy, 1928–1936 (1991) David C Wheelock, The Strategy and Consistency of Federal Reserve Monetary Policy, 1924–1933 (1991) Downloaded from https:/www.cambridge.org/core University of Florida, on 15 Feb 2017 at 18:59:35, subject to the Cambridge Core terms of use, available at https:/www.cambridge.org/core/terms https://doi.org/10.1017/CBO9781316584682.009 ... Preface xxix On Keeping Promises On Transparency 32 On Making Good Decisions 67 On Managing Wealth 97 On Learning from History: Truths and Eternal Truths 124 On Institutions: Fundamentals of Confidence... does money In a modern society, it is inconceivable for the world to go around without money Modern societies have delegated the task of safekeeping money to central banks On Central Banking contains...Advance Praise for On Central Banking “Jan Fredrik Qvigstad’s On Central Banking revives European essay writing in the tradition of Michel de Montaigne or David Hume The lectures,