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

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.