Charles A. E. Goodhart | |
|---|---|
 Goodhart delivers the keynote address during the 2012 Long Finance conference in London | |
| Born | (1936-10-23)23 October 1936 (age 88) |
| Nationality | British |
| Academic career | |
| Institutions | |
| Alma mater | |
| Contributions | Goodhart's law |
Charles Albert Eric Goodhart,CBE, FBA (born 23 October 1936) is a Britisheconomist. He worked at theBank of England on its public policy from 1968–1985, and worked at theLondon School of Economics from 1966–1968 and 1986–2002. Charles Goodhart's work focuses on central bank governance practices and monetary frameworks.[1][2] He also conducted academic research intoforeign exchange markets.[1] He is best known for formulatingGoodhart's Law, which states: "When a measure becomes a target, it ceases to be a good measure."[3]
Charles Goodhart was born on 23 October 1936 in Oxford, England toArthur Lehman Goodhart, an American residing in England, and his English wife, Cecily Carter.[1] His father studied law atTrinity College, Cambridge, eventually becoming a law don atCorpus Christi College.[1] Following the family's move toOxford, Charles' father became the Professor ofJurisprudence in 1936 and the Master of University College (1951–1963).[1][2] While their father was Jewish, Cecily Carter brought up her three sons (Philip Goodhart,William Goodhart and Charles Goodhart) as members of theChurch of England.[1] DuringWorld War II, Arthur Goodhart's outspoken opposition toNazism led to Charles (aged 2) being evacuated alongside his two elder brothers to theUnited States.[1] Upon their return, Charles joined his brotherWilliam Goodhart at the St Leonards branch of the (Oxford)Summerfields School.[1] Charles was then accepted toEton College where he focused on the study of history and languages.[2] After he finished school, he completed two years of compulsory national military service (1955–1956) in which he was involved with theHungarian Revolution of 1956 and theSuez Crisis and earned the rank ofsecond lieutenant in theKing's Royal Rifle Corps.[2]
In October 1957, Goodhart started studyingeconomics atCambridge University, where he was a member of his father's college, Trinity.[1] In his first year, he came in first in his course.[1] He learnt under economists such as Nicky Kaldor,Richard Kahn,Joan Robinson, Michael Farrell,Frank Hahn andRobin Matthews.[1] In his final year of study, he was paired in tutorials withSir James Mirrlees.[1] He completed hisundergraduate course withFirst Class Honours.[1] After completing hisundergraduate degree atCambridge, Charles moved to theUnited States in 1960 to begin research atHarvard University studyingtrade cycles.[1][2] In June 1962, following the completion of his PhD thesis, which analysedUnited States monetary history (specifically why the economy rebounded in 1907 but not in 1929), Charles and his new wife travelled back toCambridge.[1] Charles took up a Prize Fellowship atTrinity College and became anassistant lecturer in economics (1963–1964).[1] He spent the next two years interpreting English monetary history by cumulating and analysing the monthly reports of theLondon Joint Stock Banks, which were published after theBarings crisis of 1890.[1]
In 1964, Goodhart briefly joined theDepartment of Economic Affairs.[1] During this time, he worked onWhite Papers, planning the growth of the energy, construction and housing sectors in England.[1] Goodhart left theDepartment of Economic Affairs in 1966 when he joined theLondon School of Economics as a lecturer onmonetary policy.[1] During this time, he contributed to a study on English monetary policyMonetary Policy in Twelve Industrial Countries[4] which was commissioned by the federalReserve Bank of Boston.[1] He also co-authored an article in the field ofpolitical economy alongside R.J. Bhansali, which featured in the journal 'Political Studies'.[5] He stayed at theLondon School of Economics until 1968.[1]
Charles left theLondon School of Economics to work a temporary two-year assignment at theBank of England.[1] He found his expertise inmonetary economics and his knowledge ofMilton Friedman's ideas to be of high value.[1][2] He was allocated to the Economic Intelligence Department which was responsible for calculating and simulatingeconomic statistics as well as writing theBank of England's Quarterly Bulletin.[1] His first job at theBank of England was to explain the concept of domesticcredit expansion to individuals within the Bank, whilst conveying the Bank's viewpoints on such issues to outside economists.[1] In 1970, he was tasked with empirically assessing the predictability of the demand for money, and had the results published in theBank of England's Quarterly Bulletin in a paper called 'The Importance of Money'.[6] During this time Goodhart served as the first secretary of theMonetary Review Committee, who provided summarised views of monetary developments to theChancellor andTreasury of England.[1]
Whilst attending a conference held by theReserve Bank of Australia in 1975, Goodhart wrote in his footnotes "whenever a government seeks to rely on a previously observed statistical regularity for control purposes, that regularity will collapse".[7] This quote became known asGoodhart's Law.Goodhart's Law is commonly expressed as: "When a measure becomes a target, it ceases to be a good measure".[3] In 1979, Goodhart jointly wrote a paper which was published in theBank of England's Quarterly Bulletin.[1] This paper advised the newThatcher government against implementingmonetary base control.[8] In the early 1980's, Goodhart joined the home finance division of theBank of England, underJohn Fford.[1] In 1980 he was promoted to Senior Adviser at the Bank of England and stayed at this role until 1985.[1] Following the events ofBlack Saturday (1983), Goodhart travelled toHong Kong to assist in implementing a currency board system that was linked to theUnited States dollar.[1] This system helped solve theHong Kong monetary crisis.[1] Goodhart served on the Hong Kong Exchange Fund Advisory Council (an advisory board for theHong Kong Monetary Authority) for more than a decade (1983–1997).[1]
Following Goodhart's departure from theBank of England, he re-joined theLondon School of Economics as the Norman Sosnow Professor of Banking and Finance.[1] He co-founded the Financial Markets Group alongsideProf. Mervyn King, in 1986.[1] In late 1987, he gave his first lecture: 'The foreign exchange market: a random walk with a dragging anchor',[9] which was reprinted later inEconomica. During this period (1988 – 1995) his work focused onforeign exchange markets, specifically analysing theefficient-market hypothesis.[10] To help with this research, Goodhart (with the help ofReuters) built his own data series.[11] He then collaborated with Swiss firm Olsen and Associates to lead conferences about the importance of high speed data analysis and collection.[11] His results from his work were published in his book: 'The Foreign Exchange Market: Empirical Studies With High-Frequency Data'.[12] Questions he askedNeil Shephard around 1991, encourage the latter to work on problems in financial econometrics.
Goodhart helped advise and publicly supported theReserve Bank of New Zealand Act (RBNZ) 1989,[13] which permitted theReserve Bank of New Zealand to vary interest rates to help meet agreedinflation targets.[1] In 1990, Goodhart was elected as aFellow of the British Academy.[14] In 1997 he was appointed aCBE for services tomonetary economics.[14] From late 1997 until May 2000, he was a member of theBank of England Monetary Policy Committee.[14]
He retired from theLondon School of Economics in 2002 at which point he was appointed Emeritus Professor of Banking and Finance.[14] Following his retirement, Goodhart continued to write academic articles and books.[11] He assisted in theBritish Parliament's review of approaches tomonetary policy in 2007.[15] Four years prior to theGlobal Financial Crisis, Goodhart identified how the global economy was financially unstable in hisPer Jacobsson lecture 'Some New Directions for Financial Stability?'.[16][2] In the years following theGlobal Financial Crisis, much of his work has focused on fixing regulation to providefinancial stability for the economy, specifically providing reforms that "diminish the extent and volatility of thecredit andleverage cycles".[17] In an article included as part of theSouth African Reserve Bank Conference,[17] Goodhart assessed the actions taken to provide global financial stability and concluded: "proposed reforms are incomplete and/or partially misdirected".[17] In 2015, Goodhart critiqued the Warsh Review of theBank of England's policy onmonetary process.[11]
He was also an economic consultant atMorgan Stanley from 2009 until 2016, when he retired at the age of 80.[14] At the 2021Central Banking Awards, Goodhart was awarded the Central Banking Lifetime Achievement Award for his work onmonetary frameworks,risk management andforeign exchange markets as well as his involvement in the Hong Kong peg, the independence of theRoyal Bank of New Zealand and the creation ofGoodhart's Law.[11]
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One of Charles Goodhart's most prominent contributions tomonetary economics is known asGoodhart's Law. Charles wrote this law in thefootnotes of his paperProblems of monetary management: the UK experience[7] for theReserve Bank of Australia during his time at theBank of England (1975). The law states that: "whenever a government seeks to rely on a previously observed statistical regularity for control purposes, that regularity will collapse".[7] Although written initially as a witty comment about monetary targeting,[1] the underlying thought behind this notion was taken very seriously and was linked to theLucas Critique of evaluation and policy modelling.[2]
This law was generalised byanthropologistMarilyn Strathern beyond the world of statistics. The most commonly used version ofGoodhart's Law comes fromStrathern's paper: "When a measure becomes a target, it ceases to be a good measure".[3] In reflection to the creation ofGoodhart's Law, Charles wrote: "it does feel slightly odd to have one's public reputation largely based on a minor footnote".[1]
Goodhart pioneered the integration ofmacroeconomics andfinance, bringing them together in themonetary andregulatory policies ofcentral banks.[2][18] He advocates for policies that are supported by a strongtheoretical base and backed up byempirical evidence and data.[2] To provide thisempirical evidence, Goodhart used economic models that can be expressed in themathematic form.[2] He found value inmathematical models as they can be integrated with real world data – exposing their usefulness and any underlying interactions.[2]
He is quoted saying: "It is only by constructing a mathematicalinstitutional economics that one can study the economic system in a rigorous and analytical manner".[19]
Throughout his career, Goodhart played a role in improving the practice offinancial regulation andcentral banking by making it easier for governments and central bankers to benefitpublic welfare by dampeningeconomic cycles.[2]
Google Scholar listed Charles Goodhart being the author or co-author of 539 articles and books by the end of 2017.[2] His most cited works includeMoney, Information and Uncertainty andThe Evolution of Central Banks.[2]
| Author | Year | Title | Publisher | Notes |
|---|---|---|---|---|
| Goodhart, C. | 1988 | The Evolution of Central Banks | The MIT Press | This book addresses a variety of historical evidence. It argues thatcentral banks serve a natural and necessary function to regulate and supervisecommercial banks.[20][21] |
| Goodhart, C. | 1989 | Money, Information and Uncertainty | The MIT Press | This book covers most if not all aspects ofmonetary economics. It serves as a universitytextbook. It has eighteen chapters. The first nine focus onmicroeconomic issues and the following nine focus onmacroeconomic issues.[20][22] |
| Goodhart, C. | 1995 | The Central Bank and The Financial System | Palgrave Macmillan | This book contains a collection of twenty-one published articles that address the shifting purpose of central banks over time, assess attempts to preserveprice stability and critique debates about theUnited Kingdom's financial regulation proposals. Part I analyses the functions and purpose ofcentral banking. Part II focuses on the existing objectives of central banks, particularly the maintenance ofprice stability. Part III takes a broad look atfinancial regulation and its issues.[20][23] |
| Ferrin, E & Goodhart, C | 2001 | Regulating Financial Services and Markets in the 21st Century | Hart Publishing | This article is a collection ofessays that examine the effects of theFinancial Services and Markets Act 2000. It specifically looks at the United Kingdom's financial sector and how it is evolving alongside the rapidly changingglobal economy.[24] |
| Goodhart, C. | 2001 | What Weight Should Be Given to Asset Prices in the Measurement of Inflation? | The Economic Journal | This article argues that using pureAlchian/Klein methodology lends excessive weight to unstableasset prices (e.g. housing) and that there are more suitable weighting schemes (e.g. those that derive either from final expenditures or econometrically measured relationships).[25] |
| Goodhart, C. | 2008 | The Regulatory Response to the Financial Crisis | CESifo Working Paper Series No. 2257 | This paper was Goodhart's response to theGlobal Financial Crisis in 2007. He examines six aspects offinancial regulation within theUnited Kingdom's economy that theGlobal Financial Crisis highlighted. He then goes on to provide remedies for these regulatory failings.[26] |
| Brunnermeier, M., Crocket, A., Goodhart, C., Persaud, A. & Shin, H. | 2009 | The Fundamental Principles of Financial Regulation | International Center for Monetary and Banking Studies Centre for Economic Policy Research | Goodhart co-authored the 'Geneva Report on the World Economy 11'. This report examines and breaks down the regulatory failings that led to theGlobal Financial Crisis and provides conclusions and recommendations to avoid future economic crisis.[27] |
| Goodhart, C. | 2010 | Is a less pro-cyclical financial system an achievable goal? | National Institute Economic Review | In this article, Goodhart explains potentialregulations that may lead tobanking andfinance becoming less cyclical.[28] |
| Goodhart, C. & Pradhan, M. | 2020 | The Great Demographic Reversal: Ageing Societies, Waning Inequality, and an Inflation Revival | Palgrave Macmillan | This book looks into what the future holds for the global economy as it is changed by the forces ofglobalisation anddemography. It addresses matters such asdementia,ageing, inequality,retirement,populism anddebt finance.[29] |
| Goodhart, C. & Vu, Ly Hoang | 2024 | Credibility, trust, and perception of authorities’ performance | VoxEU | When respondents feel most concerned with the need to prevent inflation, trust in all the various institutions of authority has become lower, while it is marginally higher when respondents cite economic growth as one of their most important concerns. |
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