Goodhart's law

Goodhart's law

Although Goodhart's law has been expressed in a variety of formulations, the essence of the law is that once a social or economic indicator or other "surrogate" measure is made a target for the purpose of conducting social or economic policy, then it will lose the information content that would qualify it to play such a role. The law was named for its developer, Charles Goodhart (a chief economic advisor to the Bank of England).

The law was first stated in a 1975 paper by Goodhart and gained popularity in the context of the attempt by the United Kingdom government of Margaret Thatcher to conduct monetary policy on the basis of targets for broad and narrow money, but the idea is considerably older. It is implicit in the economic idea of rational expectations. While it originated in the context of market responses the Law has profound implications for the selection of high-level targets in organisations [cite journal
last = Goodhart
first = C.A.E.
authorlink =
coauthors =
title = Monetary Relationships: A View from Threadneedle Street
journal = Papers in Monetary Economics
volume = I
issue =
pages =
publisher = Reserve Bank of Australia
location =
date = 1975
url =
doi =
id =
accessdate = ] .

It has been asserted that the stability of the economic recovery that took place in the United Kingdom under John Major's government from late 1992 onwards was a result of "Reverse Goodhart's Law": that, if a government's economic credibility is sufficiently damaged, then its targets are seen as irrelevant and the economic indicators regain their reliability as a guide to policy.Fact|date=November 2007

Alternate Expressions

* "any observed statistical regularity will tend to collapse once pressure is placed upon it for control purposes":: (Goodhart's original 1975 formulation)
* "A risk model breaks down when used for regulatory purposes". (Daníelsson, 2002)::(Daníelsson formally labels this a corollary of Goodhart's Law.)
* Goodhart's law is a generalized social science expression of the more well-known and economic-specific Lucas critique.

References

* K. Alec Chrystal and Paul D. Mizen, 2001, [http://cyberlibris.typepad.com/blog/files/Goodharts_Law.pdf "Goodhart's Law: Its Origins, Meaning and Implications for Monetary Policy"]
* Daníelsson, Jón. "The Emperor Has No Clothes: Limits to Risk Modelling." Journal of Banking and Finance, 2002, 26, pp. 1273-96.


Wikimedia Foundation. 2010.

Игры ⚽ Нужно сделать НИР?

Look at other dictionaries:

  • Goodhart's law — Originally, an economic theory stating that if a particular definition of the money supply were to be used as the basis for monetary policy, the stability of its statistical relationship with spending on the economy would break down and the… …   Big dictionary of business and management

  • GOODHART, ARTHUR LEHMAN — (1891–1978), U.S. jurist. Born in New York, Goodhart studied in America and Britain and was an officer in the United States Army during World War I. In 1919 he became a lecturer in law at Cambridge University and was editor of the Cambridge Law… …   Encyclopedia of Judaism

  • Goodhart, Arthur Lehman — (1891–1978)    US jurist. A nephew of Governor Herbert Lehman, Goodhart achieved high academic distinction at Oxford University, where he was professor of jurisprudence and master of University College the first American and the first Jew to head …   Who’s Who in Jewish History after the period of the Old Testament

  • Arthur Lehman Goodhart — Arthur Lehman Goodhart, KBE, KC (1 March 1891, New York City – 10 November 1978, Oxford) was an American born British academic jurist and lawyer; he was professor of jurisprudence, University of Oxford, 1931–51. He was the first American to be… …   Wikipedia

  • Charles Goodhart — Charles Albert Eric Goodhart, CBE, FBA (born 23 October 1936) is an economist. He was a member of the Bank of England s Monetary Policy Committee from June 1997 May 2000 and a professor at the London School of Economics (1985–2002, Emeritus… …   Wikipedia

  • Ley de Goodhart — La ley de Goodhart enuncia, aunque puede expresarse con diversas formulaciones, que cuando un indicador socioeconómico u otra medida sustituta se convierte en el objetivo de políticas socioeconómicas, pierde el contenido informativo que podía… …   Wikipedia Español

  • Modern Law Review — The Modern Law Review (print: ISSN 0026 7961, online: ISSN 1468 2230) is a law review published in the United Kingdom by John Wiley Sons and which has traditionally maintained close academic ties with the Law Department of the London… …   Wikipedia

  • NYU Annual Survey of American Law — The New York University Annual Survey of American Law (Annual Survey) is a student edited law journal at New York University School of Law. Contents 1 Mission 2 Scholarship 3 Selection 4 …   Wikipedia

  • Joint Committee on Tax Law Rewrite Bills — The Joint Committee on Tax Law Rewrite Bills is a select committee of both the House of Commons and House of Lords in the Parliament of the United Kingdom. The remit of the committee is to scrutinise bills intended to make the language of tax law …   Wikipedia

  • Закон Гудхарта — GOODHART’S LAW Утверждение, суть которого заключается в том, что усилия центрального банка по регулированию уровня кредитования коммерческих банков путем установления контроля за определенными видами кредитов могут оказаться тщетными, поскольку… …   Словарь-справочник по экономике

Share the article and excerpts

Direct link
… Do a right-click on the link above
and select “Copy Link”