Ex Ante and Ex Post Meaning

Ex ante and ex post
meaning
December 17, 2016 by Tejvan Pettinger
 ex ante is Latin for before the event.

 ex ante means we look at future events based on possible predictions.
 ex post is Latin for after the event.
 ex post means we look at results and events after they have occurred.
Example of ex ante and ex post
There is an example of ex ante and ex post in this blog from Paul Krugman below about the
decision of the Fed to raise interest rates.
Firstly, the Fed is raising interest rates in the US because:
 It predicts the economy is getting closer to full capacity with unemployment falling towards
5%
 The Fed is worried about the impact of leaving interest rates at zero for too long – Zero
interest rates may cause future inflation. A small rate rise now, will help to prevent the
economy overheating.
 Fears of an asset bubble if interest rates are kept at zero for too long
However, economists (such as Krugman) are critical of the decision to raise interest rates.
 They see that headline inflation rate is still below the target of 2%. Headline inflation is 0.5%
(12 months to Nov 2015). Though core inflation which ignores fuel and food rose 2% last
month)
 Given depth and length of recession, there is still lost output compared to the previous trend
growth
 The world economy is still weak with prospects of falling demand from abroad.
 The US economy is already been affected by an appreciation in the dollar, making
manufacturing exporters less competitive
 Given the long period of economic expansion, it is better to overshoot the inflation target
than undershoot the target. If inflation rises to 4%, this will help normalise economic growth
and end fears of deflation, but it is relatively easy to reduce inflation of 4%.
 However, if the Fed undershoot the inflation target and we end up with deflation – this is
much more damaging. It has proved much more difficult to overcome deflation (e.g. case of
Japan and increasingly the Eurozone)
Example of ex ante and ex post
And it will be quite some time before we have any evidence about whether
the Fed’s judgement of the economy’s trajectory was right. (I think this was
an ex ante mistake even if it turns out OK ex post, but it’s still interesting to
see how it goes.) We’re talking months if not quarters, and it may take
years. Fed Follies
The decision to raise interest rates is based on ex ante predictions. The Fed doesn’t know for
certain how the US economy will behave. It is making a prediction that the economy is
growing fast enough to justify a rate rise.
However, it will only be in one or two years, whether we will be able to tell whether the
decision was correct. For example, if this interest rate, combined with the global recession,
pushes the US economy back into recession, the ex ante analysis of raising rates may prove it
to be the wrong decision.
What does Krugman mean when he says “I think this was an ex ante mistake even if it turns
out OK ex post”
Even if the US economy is still doing well in one or two years time, with strong growth – this
would suggest that the decision to raise interest rates was justified. However, Krugman feels
that it is better to err on the side of caution – it is better for inflation to overshoot than
undershoot. In other words, the problems of inflation above the target are not symmetrical
with the problems of inflation below the target. Given current knowledge of the economy, the
best ex ante decision is to hold back from raising rates.
Eurozone raising interest rates 2011

In 2011, higher oil prices caused a rise in inflation. Based on ex-ante predictions of future
inflation, the ECB raised interest rates. However, inflation proved temporary and the
Eurozone economy slipped back into recession. Ex post (after the fact) it appears this
decision to raise interest rates was misguided because:
 There was no real underlying inflation
 The rise in interest rates was a factor in causing a recession.
 It would have been better to tolerate higher inflation (like the Bank of England did) than risk
a slowdown.
Related
 Impact of increasing interest rates
Categoriesconcepts, economicsPost navigation
Impact of raising US interest rates on US and global economy
Interest Rates and the Economy
3 thoughts on “Ex ante and ex post meaning”
When transcribed from Latin, ex-ante is the prediction of a particular event in the future,

such as the potential returns. ... On the other hand, ex-post means “after the event,”
while ex-ante means “before the event.” Ex-post is backward-looking, and it looks at
results after they have already occurred.

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Ex ante and ex post

 ex ante is Latin for before the event.

Eurozone raising interest rates 2011

Impact of raising US interest rates on US and global economy

Interest Rates and the Economy

3 thoughts on “Ex ante and ex post meaning”

When transcribed from Latin, ex-ante is the prediction of a particular event in the future,

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