Evolving Central Bank thinking: the Irish Central Bank, 1943-69

"The lens through which a Central Bank views the economy and macroeconomic policy affects their analysis of economic performance, their assessment of government policies, their role as policymakers and ultimately economic growth and performance. Economic ideas matter. In keeping with this idea, this paper examines how the thinking of the Irish Central Bank, evolved over a period of major transformation (1943-1969) in the Irish economy and intellectual developments in monetary theory and policy. In doing so, the paper seeks to address the gaps identified by Brownlow (2010) in our understanding of “the precise intellectual influences on the development of the Bank’s economic thinking” and to evaluate whether or not “Ireland’s monetary authorities merely copied British policy practice rather than considered the implications for Ireland of the emerging academic research within monetary economics” (Brownlow 2010, p. 320) This paper adopts an interpretivist approach to the Bank’s Annual Reports from their introduction in 1943 until 1969 to uncover the Bank’s evolving thinking. In this regard, it extends the narrative work completed by Moynihan (1975). We adopt the view that the annual reports, in terms of the data that the Bank collected and published, the evidence it used, its analysis and its commentary on the Irish economy and international events reveal evolving thinking and understanding of how monetary factors affect the economy, how government policy interacts with monetary matters and the role of the Bank and monetary policy in a small but open economy. Where relevant, we also support our analysis with archival research. Our preliminary analysis points to an evolution in the level of analysis, critique and the application of economic ideas. Although the Bank’s governors were initially influenced by UK Treasury thinking, they were also guided by international economists. We note that over time the Central Bank became progressively shaped and influenced by international academic developments in monetary theory and policy, which repositioned them away from UK monetary thinking. While the Central Bank Act 1942 required the Bank to “publish informative material” regarding monetary and credit problems, we find that the content of the reports evolved very rapidly. The Governor (and subsequent governors) began to publish an annual report immediately and by the second report, the Bank had started to comment on macroeconomic conditions. By 1947 the Bank’s Report began to comment on government policy. In this regard they provide clear evidence that the Irish Central Bank differed significantly in how it perceived itself and its role, from the Bank of England at this time. The latter’s reports did not include either analysis or commentary as it wished to ensure that its interpretation of events and their exposition of current problems, would not cause embarrassment to the government. "