The publication “game” can even generate short-term herding and fads. The validation of an economic model is typically a backward-looking exercise: is the model able to replicate past observations? In the world of policy-makers, one has to think seriously about what happens if the data-generating process changes. Forecasting such changes is also important, as policy actions often have an impact with a lag.
It is this desire to see market discipline taking a greater role in regulating the affairs of banking organizations and others that has motivated the Federal Reserve Board to voice its opinions about accounting standards that are being developed by the Financial Accounting Standards Board (FASB).