Monetarism,Keynesianism and the Institutional Status of Central Banks

Abstract

The paper challenges the belief that economic reality is perceived and economic policy formulated solely on the basis of the state of the economy and the trends within it Taken into account are the characteristics of the social institutions responsible for following economic development and for taking measures to control the economy themselves or through their author ized recommendations to other institutions within the social system The institutional and historical material used in this paper covers the four major Nordic countries The discussion focuses on the status of the central banks, especially their relation to government and parliament, and concludes (1) that central bank status varies greatly between the Nordic countries, and (2) that the autonomous status of the central bank appears to correlate with monetarist features of economic policy. Central banks have less autonomy in the more 'Keynesian' Scandinavian countries. Sweden and Norway, where Keynesianism is often connected with strong and long-term social democratic rule. The genesis of the structural status of the different central banks cannot be explained by the strength of social democracy Present differences in the structural status of the Scandinavian central banks existed as early as the nineteenth century, long before social democracy began to play a role in the government policy of any Scandinavian country or before the birth of Keynesianism as an economic doctrine.