A framework forThe Monetary History of Norway

Jan Tore Klovland

The Norwegian School of Economics and Business AdministrationBergen, Norway

Important pieces of the framework

1. Banking and financial markets: structural changes

2. Sources of money growth3. Monetary regimes4. Money, interest and prices5. Business cycle chronology6. Financial crises7. Regional aspects of monetary policy (until

1892) – an appetizer

1A-The central bank, the private banks and the state owned banks:

All had their period of dominance

1B - Secular trends in velocity:Evidence of increasing financial sophistication?

2 – Sources of money growth: a useful descriptive framework?

3 – monetary regimes

A monetary policy aiming at stable exchange rates has a long tradition in Norway… A regime of floating exchange rates has never been accepted as an appropriate

monetary framework.Jan F. Qvigstad & Arent Skjæveland: Festschrift to Hermod Skånland (1994)

4 – money, interest and prices: in many respects the pre-1914 era was more similar to the most

recent decades than the years 1914 – 1980s

The rise and fall of the Norwegian krone 1914 - 1939

5 - Business cycles: even during the few periods of flexible exchange rates business cycles in Norway

were largely determined by foreign impulses

Peaks Troughs

Norway TP Lag Norway TP Lag

1920:6 1920:2 4 1921:6 1921:5 11925:4 1925:1 3 1926:10 1926:7 31929:8 1929:6 2 1932:12 1932:7 51937:8 1937:5 3 1939:2 1938:7 7

Manufacturing production for Norway: monthly indices for 15 industrial groups weighted by value added in 1929. Adjusted for periods with labour conflicts by using information on lost working days by industry.

Manufacturing production abroad (TP): monthly indices for 16 countries weighted by bilateral trade shares (Norwegian exports + imports to Norway)

Turning points in manufacturing output: Norway and her trading partners (TP)

6 – Financial crises in Norway

• The international commercial crises of 1848 and 1857• Financial impulses from abroad

• The failures of coastal, medium-sized banks in the 1880s• Deflation, the collapse of the

shipping market

• The Christiania Crash of the late 1890s• Excessive bank lendding and the

property market bubble

• The first big one: the 1920s• Deflation and reckless monetary

policy 1916 - 1920

• The second big one: the early 1990s • Financial market deregulation,

administered interest rates and the fixed exchange rate policy