Goodhart's law


Also found in: Wikipedia.

Goodhart's law

the proposition that attempts by a CENTRAL BANK to regulate the level of lending by commercial banks through the imposition of controls over certain types of lending can be circumvented by the banks, which find alternative methods of lending that are not subject to regulation.

See MONETARY POLICY, FINANCIAL INNOVATION

References in periodicals archive ?
Central banks in advanced economies have recently been providing a few more case studies confirming Goodhart's Law, as they struggle to fulfil their promises to raise inflation to the stable plateau of their numerical targets.
When a measure becomes a target, it ceases to be a good measure," is referred to in economics as Goodhart's Law.
In what has become known as Goodhart's law, after Charles Goodhart, a former adviser to the Bank of England, it is stated that:
While Goodhart's law originated in the context of market responses, it has profound implications for the compliance with high-level policy goals, like the suggested SDGs.
This idea lies at the heart of the Goodhart's law in economics, which states that "any observed statistical regularity will tend to collapse once pressure is placed upon it for control purposes".
There is much anecdotal evidence in British local government to the effect that performance indicators fall foul of Goodhart's Law.
Unless you are an economist you probably won't know Goodhart's Law.
But he is also the creator of Goodhart's Law, which states, in the context of economics, "An indicator is useful until it becomes a target.
An even more pessimistic view, known as Goodhart's Law,(20) holds that any statistical relationship is likely to break down when policymakers try to exploit it.
I think that Goodhart's Law is relevant only if monetary policy is not anchored by clear, well-understood objectives.