Tinbergen rule
Topic: Schools of Economic Thought and Economic Laws · NCERT: Beyond NCERT
Meaning
The Tinbergen rule says that to reach a given number of independent policy targets, you need at least as many policy instruments. In short: one instrument for each target. If one tool is used to chase two goals, it usually fails at one of them. The rule is named after Jan Tinbergen, who shared the first economics Nobel (1969) with Ragnar Frisch. It guides how governments and central banks divide up their tasks.
Example
Under India's flexible inflation-targeting framework, RBI uses the repo rate (the rate at which it lends to banks) mainly for its inflation target of 4% ± 2% on the consumer price index (CPI). For other goals, other tools are used: forex market operations for rupee stability, and fiscal policy for growth and welfare.
Don't confuse with
- Goodhart's law: it warns that a measure turned into a target gets gamed. The Tinbergen rule is about matching the number of tools to the number of goals.
Related concepts
- Monetarism
- Chicago school
- Cantillon effect
- Adaptive expectations
- Rational expectations
- Lucas critique
- Real business cycle theory
- Austrian school
- Economic calculation problem
- Supply-side economics