Goodhart’s law

Updated: Aug 20, 2021

The observation by the economist C. Goodhart (b. 1936) that when an empirical regularity starts to be exploited as a basis for economic policy, it is liable to break down. This is one application of the Lucas critique, that the observed behaviour of economic systems is affected by the economic policies in force. If the policy regime changes, the behaviour of the economy is liable to change, so that econometric models fitted during earlier policy regimes become unreliable as a basis for predicting the effects of new policies.

Reference: Oxford Press Dictonary of Economics, 5th edt.

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James Knight
Editor of Education
James is the Editor of Education for Invezz, where he covers topics from across the financial world, from the stock market, to cryptocurrency, to macroeconomic markets.... read more.