Goodhart's law


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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 ?
If there is one thing that unites all metrics, then it is adherence to Charles Goodhart's law: 'When a measure becomes a target, it ceases to be a good measure'.
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.
As British economist CharlesGoodhart explained in the 1980s, "any observed statistical regularitywill tend to collapse once pressure is placed upon it for controlpurposes." Central banks in advanced economies have recently beenproviding a few more case studies confirming Goodhart's Law, as theystruggle to fulfil their promises to raise inflation to the stableplateau 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. I believe this could not be truer than when referring to commonly used digital metrics.
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".
The differences between the three nations aside, our work raises two deeper issues: 'Goodhart's Law', and the possibility of contradictory government policies.
There is some understanding of 'Goodhart's Law' in the private sector--that measurements used to control staff will always be inaccurate--but a decreasing realisation of the poverty of centralisation in an increasingly nervous government.
Unless you are an economist you probably won't know Goodhart's Law.
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.
Some years back, I heard about "Goodhart's Law."(1) I think Henry Wallich first told me about it and wrote about it.