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Topic: Lucas critique

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	JMR1B Summary and Biography - American Marketing Association - www.marketingpower.com
		This critique says that econometric models based on historical data are often unable to predict the reaction of economic agents to policy changes because these agents will adapt their decisions strategically based on the changed policy.
		For the Lucas critique to be applicable, the authors formulate three conditions: (1) economic agents are aware of the policy change, (2) economic agents are motivated to change behavior as a direct consequence of the policy change, and (3) economic agents are able to change their behavior.
		In addition, a major implication that results from the Lucas critique is that the use of holdout samples and simulations in practice should be conducted with closer scrutiny and a higher degree of skepticism.
	www.marketingpower.com /content24619.php (1066 words)

	Lucas Critique - Karr.net (Site not responding. Last check: 2007-10-26)
		The Lucas Critique says that it's naive to try to predict the effect of a policy experiment based on correlations in historical data, especially high-level aggregated historical data.
		The basic idea is old, but in a 1976 paper Robert Lucas drove the point home that this simple notion invalidated policy advice conditioned on the response of estimated system of equation models.
		The Lucas Critique was influential not only in casting doubt on many models of the economy but also in encouraging macroeconomists to build microfoundations for their models.
	216.92.11.22 /encyclopedia/Lucas_critique (409 words)

	Lucas critique - Wikipedia, the free encyclopedia
		According to the Lucas Critique, prediction based on historical data would be invalid if some policy change alters the relationship between relevant variables (such as private agents' rational expectations of inflation).
		Lucas indicates that the effect of policy on aggregate demand depends on the public's expectations.
		The Lucas critique is essentially negative, being a statement about how not to do economics [1],".
	en.wikipedia.org /wiki/Lucas_critique (256 words)

	Lucas - Wikipedia, the free encyclopedia
		Charles Lucas, a Royalist general in the English Civil War.
		Joseph Lucas, was a British automotive electrical components manufacturer - Lucas Automotive, LucasVarity.
		Lucas is probably a contraction of Latin Lucanus, lit.
	en.wikipedia.org /wiki/Lucas (157 words)

	The Scientific Contributions of Robert E. Lucas, Jr.
		Lucas formulated the model's equilibrium as a functional equation for the functions describing the responses of the model's endogenous variables to exogenous random disturbances, and he also solved the functional equation.
		Briefly, the 'critique' implies that estimated parameters which were previously regarded as 'structural' in econometric analysis of economic policy actually depend on the economic policy pursued during the estimation period (for instance, the slope of the Phillips curve may depend on the variance of non-observed disturbances in money demand and money supply).
		Lucas showed that asset prices can be expressed as a function of the economy's state variables, which is the solution to a functional equation that arises from a combination of an equilibrium assumption and a first-order condition for the agents' individual decision problem.
	nobelprize.org /nobel_prizes/economics/laureates/1995/back.html (3332 words)

	Lucasianism
		From a viewpoint of the history of macroeconomics it is interesting that the Lucas critique is (i) identified with rational expectations and (ii) the object of his critique is identified with Keynesian macroeconometrics and macroeconomics.
		It was devoted to the Lucas critique and the 'hypothesis of rational expectations'.
		Some authors refer to the Lucas critique in a way that shows the importance of recognizing that economics is a social science which is not guided by certain laws or by the law of gravity or by numbers.
	www.wiwiss.fu-berlin.de /w3/w3tomann/muchlinski/LUCASI.HTM (9326 words)

	Lucasianism
		From a viewpoint of the history of macroeconomics it is interesting that the Lucas critique is (i) identified with rational expectations and (ii) the object of his critique is identified with Keynesian macroeconometrics and macroeconomics.
		Lucas intended to show the microstructure, which is to be seen as a representation of individual behavior responding to economic policy.
		It was devoted to the Lucas critique and the 'hypothesis of rational expectations'.
	sites.wiwiss.fu-berlin.de /tomann/muchlinski/LUCASI.HTM (9326 words)

	Highbeam Encyclopedia - Search Results for Lucas,
		Lucas is best known for his science fiction classic Star Wars (1977).
		Lucas Muller (born 1472, Cranach, bishopric of Bamberg—died Oct. 16, 1553, Weimar, Saxe-Weimar) German painter and printmaker.
		The Lucas effect: the original "Star Wars" not only inspired movie lovers, it launched a revolution in filmmaking.
	www.encyclopedia.com /SearchResults.aspx?Q=Lucas, (807 words)

	Strange Horizons Articles: We Must Love One Another or Die: A Critique of Star Wars, by Athena Andreadis
		The girl is a threat to the boy's purity of purpose, an Eve in the making; when she crosses the sexual and emotional boundary, she is speedily dispatched, abandoning her defenseless children—the girl condemned to be left untrained in her power, the boy slated to undergo the brutalization already meted out to his father.
		Lucas is swift to punish those who partake of the fruit of knowledge and threaten to become independent moral agents.
		Lucas posits) but, on the contrary, that he doesn't trust his lover enough to heed her counsel.
	www.strangehorizons.com /2005/20051003/star-wars-a.shtml (3465 words)

	[No title]
		Lucas concluded therefore that these models should not be used to evaluate the impact of alternative policies or make economic predictions.
		The so-called Lucas critique was a major blow to macroeconomic model building, and at the same time very supportive to the revival of supply side economic policy making.
		This critique may even be more forceful in the context of developing and transition countries, where not only policies change, but the overall institutional, structural and international environment changes, be it gradually or shock-wise.
	www.unescap.org /drpad/projects/casia/uzb_model.doc (2242 words)

	[No title]
		Third, in what is called the Lucas Critique, Lucas(1976) raised the problem of a lack of structural invariance of optimal behavioural equations due to strategic responses to anticipated policy events that may cause predictive failure in econometric models for purposes of policy evaluation.
		Lucas (1976) states that if policy changes were not preannounced then the “movement to a new symbol 113 \f "Symbol" \s 12(symbol 108 \f "Symbol" \s 12), if it occurs in a stable way at all, will be unsystematic and econometrically unpredictable.
		This underpins the intuition behind the Lucas postulate on policy ineffectiveness in the case of fully anticipated policy and the wisdom behind the panacea that to forestall escape/subversion, the policy rule must be undefined and fraught with ambiguity.
	privatewww.essex.ac.uk /~scher/20Folder/MarkoseJEBO.doc (7017 words)

	Lucas, Robert E., Jr.
		Lucas graduated from the University of Chicago with degrees in history (A.B., 1959) and economics (Ph.D., 1964).
		Lucas' critique of the Phillips curve shows that inflation may continue to rise in the long run without a corresponding drop in unemployment because higher production costs and higher consumer prices can eventually offset higher revenues and higher wages, thereby dampening the expectations of both companies and workers.
		Lucas was also known for his contributions to investment theory, international finance, and economic growth theory.
	www.britannica.com /nobel/micro/721_20.html (280 words)

	The Prize in Economics 1995 - Press Release
		In a series of path-breaking articles, Lucas demonstrated the far-reaching consequences of rational expectations formation, particularly concerning the effects of economic policy and the evaluation of these effects using econometric methods, that is, statistical methods specifically adapted for examining economic relationships.
		In a study published in 1972, Lucas used the rational expectations hypothesis to provide the first theoretically satisfactory explanation for why the Phillips curve could be sloping in the short run but vertical in the long run.
		Lucas formulated an ingenious theoretical model which generates time series such that inflation and employment indeed seem to be positively correlated.
	www.nobelprize.org /nobel_prizes/economics/laureates/1995/press.html (1808 words)

	Highbeam Encyclopedia - Search Results for Lucas (Site not responding. Last check: 2007-10-26)
		Nobel laureate Robert E. Lucas, Jr.: architect of modern macroeconomics.
		George Lucas Establishes Lucas Learning Ltd.; Susan Schilling Named General Manager.
		Lucas finds the winning recipe for Proviso W. // Milestone victory is mark of successful coaching career
	www.encyclopedia.com /SearchResults.aspx?Q=Lucas (807 words)

	Rational Expectations Lucas vs
		The existence of a long-run trade-off between unemployment and inflation (the Phillips curve) was rebutted by Friedman and by Phelps in the late 1960s, paving the way for the `rational expectations revolution' in macroeconomics and the `Lucas critique' of the use of econometric models for policy evaluation.
		Lucas argued that optimal decision rules vary systematically with changes in the structure of variables relevant to optimizing decision-makers, so that any policy change will alter the structure of econometric models on which the policy change may have been based.
		Yet the Lucas critique has largely been ignored by the majority of applied econometricians because of a lack of empirical evidence.
	www.cepr.org /pubs/bulletin/dps/dp321.htm (547 words)

	Assessing the Lucas critique in monetary policy models. \| Finance from AllBusiness.com
		LUCAS (1976) ARGUES that the parameters of traditional macroeconometric models depend implicitly on agents' expectations of the policy process and are unlikely to remain stable as policymakers change their behavior.
		Second, the Lucas critique helped change the focus of policy evaluation from consideration of alternative paths of the policy instrument to consideration of alternative policy rules, which allowed individual agents to formulate forward-looking dynamic optimization problems.
		From the standpoint of the Lucas critique, the most interesting result from these studies is that they typically reject the stability of historical monetary policy rules.
	www.allbusiness.com /finance/407948-1.html (796 words)

	Working Papers: The Lucas Critique and the Stability of Empirical Models
		This paper re-considers the empirical relevance of the Lucas critique using a DSGE sticky price model in which a weak central bank response to inflation generates equilibrium indeterminacy.
		The model is calibrated on the magnitude of the historical shift in the Federal Reserve’s policy rule and is capable of generating the decline in the volatility of inflation and real activity observed in U.S. data.
		In contrast, when the instability of the reduced-form error variances is accounted for, the Lucas critique is found to be empirically relevant for both artificial and actual data.
	www.richmondfed.org /publications/economic_research/working_papers/paper.cfm?link=06-5 (163 words)

	The Prize in Economics 1995 - Presentation Speech
		However, in an analysis carried out around 1970, Lucas used the concept of rational expectations to demonstrate that employment could definitely not be permanently increased by allowing inflation to rise.
		Although Lucas was able to explain why the Phillips curve appeared to have so much empirical support, he could also show that any attempt to exploit the Phillips curve and permanently increase employment by systematically creating higher inflation would be futile.
		Lucas showed that not only the Phillips curve, but several other significant relationships that had previously been considered stable (for instance, the dependence of consumption and investments on wages, interest rates and taxes) on closer examination are likely to change due to shifts in economic policy.
	www.nobelprize.org /nobel_prizes/economics/laureates/1995/presentation-speech.html (792 words)

	Untitled (Site not responding. Last check: 2007-10-26)
		According to the Lucas Critique, private sector parameters and the parameters of central bank policy rules are confounded together within the demand and supply solution functions that typically are estimated in macroeconometric models.
		We derive and estimate the Euler equations in a manner that circumvents the Lucas Critique.
		We conclude that both the Lucas critique and the Barnett critique can be circumvented by estimating Euler equations with weak separability tested and imposed prior to the construction of monetary aggregates in the financial sector.
	econwpa.wustl.edu:8089 /eps/mac/papers/9602/9602002.html (15999 words)

	Hobson's Choice: Everything I know about VARS, I learned at the St Louis Fed-2
		Hoover and Jordá test the Lucas Critique by running an autoregression of their own, one in which there are held to be two categories of people—"rational" and "rule-of-thumb" people—who operate under different assumptions.
		The authors develop a more complex, nuanced version of the Lucas Critique (the [monetary] "policy ineffectiveness proposition") than the customary interpretation—which is that only unanticipated, unanticipated shocks have any effect on real output.
		Third, Lucas is correct, nonetheless, that the aggregate reactions of the economy are conditioned on policy regimes and the analysis of what happens when a regime changes—in practice as well as in theory—requires some structural knowledge.
	www.jamesrmaclean.com /archives/000650.html (878 words)

	USATODAY.com - Lucas: 'Star Wars' isn't Iraq wars (Site not responding. Last check: 2007-10-26)
		Lucas said that a long time ago in a galaxy far away, he had read some history and wondered why, after going to the trouble of killing Caesar, the Roman Senate turned things over to his equally power-hungry nephew, Augustus Caesar?
		Lucas said Darth Vader's saga is about how a good man turns himself into a bad one.
		Lucas showed the modesty of a Jedi knight when asked how he felt about stealing the limelight from filmmakers competing at Cannes.
	www.usatoday.com /life/movies/news/2005-05-15-cannes-lucas_x.htm (504 words)

	Dissertation Defense, WMU Graduate College
		The analysis is done by invoking the Lucas critique and superexogeneity tests.
		The paper proposes the methodology that, if the parameters of the Taylor rule change when the mechanism generating inflation changes, that is the Lucas critique applies, then inflation is not superexogenous for the parameters of the Taylor rule.
		This invariance result implies that the Lucas critique does not apply and policy rules are not forward-looking.
	www.wmich.edu /graduate/dissertation/dis-archive/sooreea.html (461 words)

	Structural Breaks - A. Banerjee
		In the jargon of Engle, Hendry and Richard (1983), the stability of an estimated model is crucial to the task of evaluating the impact of policy changes within a macroeconomic system.
		Thus, say, one models the conditional density of y, conditional on variables z and w, and the marginal processes generating z and w change, for policy analyses to be undertaken without difficulty one would need to have stability of the conditional density.
		Testing of (for) the Lucas critique (Ericsson and Irons (1995)) consequently becomes a significant part of the evaluation of large and small macroeconomic models, and the devising of powerful tests of stability thereby becomes a vitally important task for the theoretical econometrician.
	cfpm.org /pub/workshop/banerjee.html (1454 words)

	FRBB Working Papers: Are "Deep" Parameters Stable? The Lucas Critique as an Empirical Hypothesis
		For years, the problems associated with the Lucas critique have loomed over empirical macroeconomics.
		Since the publication of the classic Lucas (1976) critique, researchers have endeavored to specify models that capture the underlying dynamic decision-making behavior of consumers and firms who require forecasts of future events.
		By uncovering the "deep" structural parameters that characterize these fundamental behaviors, and by explicitly modeling expectations, it is argued, one can capture the dependence of agents' behavior on the functions describing policy.
	www.bos.frb.org /economic/wp/wp1999/wp99_4.htm (189 words)

	Lucas Critique (Site not responding. Last check: 2007-10-26)
		Lucas challenges usefulness of econometric models for policy evaluation
		Critique follows from RE implication that change in way variable moves, changes expectations formation
		Another implication of Lucas analysis: expectations about policy influences response to policy
	itech.fgcu.edu /faculty/bhobbs/Mishkin/chapter28/sld002.htm (84 words)

	David Brin's Official Web Site: My Star Wars: Phantom Menace critique (article)
		The fl and white, good-evil dichotomy Lucas presents hides the fact that a mighty henchman can desert a master he despises, especially when it could strengthen an opposing side that's getting stronger by the hour.
		Lucas says he's a true Campbellian myth-teller, but he doesn't even do that right.
		Lucas seems never to have studied this whole branch of human experience before preaching to us about the Warrior's Way.
	www.davidbrin.com /starwarsarticle1.html (3513 words)

	Robert Lucas
		One of the most influential modern economic theorists, Robert Lucas is the leader of the New Classical school - the 'modern' version of the Chicago School.
		His introduction of the concept of rational expectations in the 1970s helped to decisively bury the Neo-Keynesian orthodoxy and inaugurated a new era of macroeconomics relying on the neo-classical concept of supply-determined equilibrium, best exemplified in modern 'Real Business Cycle' theory.
		He is also renowned for the 'Lucas Critique' (1976) of the use of econometric models for policy purposes.
	www.economyprofessor.com /theorists/robertlucas.php (436 words)

	What's Behind Edward C. Prescott's Nobel Prize? - Knowledge@Wharton
		In a number of papers in the 1970s, culminating in a 1976 paper that became known as the "Lucas Critique," Lucas made it clear that no monetary policy that didn't take into account the ever-shifting behavior of individuals trying to make the best decisions for themselves would be viable.
		Prescott, who was influenced early on by Lucas, had arrived at Carnegie Mellon as a graduate student in 1963, the same year Lucas joined the university as an assistant professor.
		Lucas and Prescott began working together and published a paper called "Investment Under Uncertainty" in 1971 and another called "Equilibrium Search and Unemployment" in 1974.
	knowledge.wharton.upenn.edu /article.cfm?articleid=1082&CFID=1480280&CFTOKEN=87561595 (2743 words)

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