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From Expert Judgment to Model based Monetary Analysis: The Case of the Dutch Central Bank in the Postwar Period

Author

Listed:
  • Frank A.G. den Butter

    (VU University Amsterdam)

  • Harro B.J.B. Maas

    (Utrecht University)

Abstract

This paper investigates the history of the shift from expert to model based monetary policy analysis at the Dutch Central Bank (DNB) in the postwar period up to the middle of the nineteen-eighties. For reasons that will become clear expert based reasoning at DNB was referred to as normative impulse analysis. Our focus is on two aspects of this shift: (i) from an expert based monetary analysis to a model based analysis of channels of monetary transmission, and (ii) from the top down way of monetary analysis where the president of DNB acted as the monetary expert that was in line with the hierarchical organisation of DNB to the bottom up modelling approach that was set up by a group of newly hired young academic outsiders and destabilized DNB's organisation. The resulting econometric model enabled DNB to regain some of its argumentative strength in the Dutch policy arena that had become dominated by the econometric model of the Dutch Planning Bureau (of wh ich Tinbergen was the first director), but also led to tensions within DNB's organisation. In spite of efforts to incorporate the main aspects of Holtrop's monetary analysis within the model, its concomitant new research group appeared difficult to integrate within the hierarchical organisation of DNB. The model analysis resulted in the MORKMON model which replaced Holtrop's analysis in the mid 1980s and was regularly used in policy analysis and forecasting of DNB until 2011, when the model was replaced by the DELFI model.

Suggested Citation

  • Frank A.G. den Butter & Harro B.J.B. Maas, 2011. "From Expert Judgment to Model based Monetary Analysis: The Case of the Dutch Central Bank in the Postwar Period," Tinbergen Institute Discussion Papers 11-161/3, Tinbergen Institute.
    • Handle: RePEc:tin:wpaper:20110161
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    References listed on IDEAS

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    1. Selden, Richard T., 1975. "A critique of Dutch monetarism," Journal of Monetary Economics, Elsevier, vol. 1(2), pages 221-232, April.
    2. Polak, Jacques J., 1998. "The IMF monetary model at 40," Economic Modelling, Elsevier, vol. 15(3), pages 395-410, July.
    3. J. J. Polak & Lorette Boissonneault, 1960. "Monetary Analysis of Income and Imports and Its Statistical Application," IMF Staff Papers, Palgrave Macmillan, vol. 7(3), pages 349-415, April.
    4. William C. Brainard & James Tobin, 1968. "Pitfalls in Financial Model-Building," Cowles Foundation Discussion Papers 244, Cowles Foundation for Research in Economics, Yale University.
    5. J. J. Polak, 1957. "Monetary Analysis of Income Formation and Payments Problems," IMF Staff Papers, Palgrave Macmillan, vol. 6(1), pages 1-50, November.
    6. Holtrop, M V, 1972. "On the Effectiveness of Monetary Policy: The Experience of the Netherlands in the Years 1954-1969," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 4(2), pages 283-311, May.
    7. den Butter, F. A. G. & Fase, M. M. G., 1981. "The demand for money in EEC countries," Journal of Monetary Economics, Elsevier, vol. 8(2), pages 201-230.
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    More about this item

    Keywords

    Dutch monetarism; history of economic modelling; monetary policy;
    All these keywords.

    JEL classification:

    • B23 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Econometrics; Quantitative and Mathematical Studies
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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