[go: up one dir, main page]
IDEAS home Printed from https://ideas.repec.org/p/hal/cesptp/halshs-01179114.html
   My bibliography  Save this paper

Criticizing the Lucas Critique: Macroeconometricians' Response to Robert Lucas

Author

Listed:
  • Aurélien Goutsmedt

    (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)

  • Erich Pinzon-Fuchs

    (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)

  • Matthieu Renault

    (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)

  • Francesco Sergi

    (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)

Abstract
The standard history of macroeconomics considers Lucas (1976)– "the Lucas Critique" –as a path-breaking innovation for the discipline. According to this view Lucas's article dismissed the traditional macroeconometric practice calling for new ways of conceiving the quantitative evaluation of economic policies. The Lucas Critique is considered, nowadays, as a fundamental principle of macroeconomic modeling (Woodford, 2003). The interpretation and the application of the Critique, however, represent still unsolved issues in economics (Chari et al., 2008). Even if the influence of Lucas's contribution cannot be neglected, something seems to be missing in the narrative: the reactions of the economists that were directly targeted by the Critique. Modeling practices of economic policy evaluation were not overthrown immediately after Lucas (1976), creating a divide between theoretical and applied macroeconomics (Brayton et al., 1977). The purpose of this paper is to study the reactions of the macroeconometricians criticized by Lucas. We focus especially on those macroeconometricians who worked on policy evaluation and who held an expertise position in governmental institutions. We categorize the different reactions to the Critique, in order to enrich the understanding of the evolution of modeling and expertise practices through the analysis of the debates–which have not yet been completely solved. In the first section, we propose a careful account of Lucas's argument and of some of the previous works anticipating the substantial outline of the Critique (like Frisch's notion of autonomy). Second, we bring our own interpretation of Lucas (1976). We think that we find two points of view in Lucas paper: a prescriptive one that tell you how to build a good macroeconometric model (it is the standard interpretation of the article); a positive one that relies on the fact that the Lucas critique could be seen as an attempt to explain a real-world phenomenon, the stagflation. Third, we classify the reactions of the Keynesian macroeconometricains following this line of interpretation. On the prescriptive side, the Keynesians protested against the New Classical solution to the Lucas critique (the use of the rational expectation hypothesis among other things). Klein, for instance, proposed an alternative microfoundational programme to study more empirically the formation of expectations. On the positive side, the Keynesians put into question the relevance of the Lucas Critique to explain the rise of both unemployment and inflation in the 1970s. They tried to test the impact of policy regime changes and of shifts in agents behaviour. According to us, in general, the explanation of the stagflation was elsewhere.

Suggested Citation

  • Aurélien Goutsmedt & Erich Pinzon-Fuchs & Matthieu Renault & Francesco Sergi, 2015. "Criticizing the Lucas Critique: Macroeconometricians' Response to Robert Lucas," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-01179114, HAL.
    • Handle: RePEc:hal:cesptp:halshs-01179114
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-01179114
    as

    Download full text from publisher

    File URL: https://shs.hal.science/halshs-01179114/document
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Orphanides, Athanasios, 2003. "The quest for prosperity without inflation," Journal of Monetary Economics, Elsevier, vol. 50(3), pages 633-663, April.
    2. Nelson Edward, 2005. "The Great Inflation of the Seventies: What Really Happened?," The B.E. Journal of Macroeconomics, De Gruyter, vol. 5(1), pages 1-50, July.
    3. Hansen, Lars Peter & Sargent, Thomas J., 1980. "Formulating and estimating dynamic linear rational expectations models," Journal of Economic Dynamics and Control, Elsevier, vol. 2(1), pages 7-46, May.
    4. Barro, Robert J, 1977. "Unanticipated Money Growth and Unemployment in the United States," American Economic Review, American Economic Association, vol. 67(2), pages 101-115, March.
    5. Jung, Woo S., 1986. "Optimal stabilization policies under rational expectations," Economic Modelling, Elsevier, vol. 3(2), pages 117-125, April.
    6. Minford, Patrick & Marwaha, Satwant & Matthews, Kent & Sprague, Alison, 1984. "The Liverpool macroeconomic model of the United Kingdom," Economic Modelling, Elsevier, vol. 1(1), pages 24-62, January.
    7. Lawrence R. Klein, 1985. "Did Mainstream Econometric Models Fail to Anticipate the Inflationary Surge?," Palgrave Macmillan Books, in: George R. Feiwel (ed.), Issues in Contemporary Macroeconomics and Distribution, chapter 12, pages 289-296, Palgrave Macmillan.
    8. Sargent, Thomas J & Wallace, Neil, 1973. "Rational Expectations and the Dynamics of Hyperinflation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 14(2), pages 328-350, June.
    9. Neil R. Ericsson & John S. Irons, 1995. "The Lucas critique in practice: theory without measurement," International Finance Discussion Papers 506, Board of Governors of the Federal Reserve System (U.S.).
    10. Tobin, James, 1981. "The Monetarist Counter-Revolution Today-An Appraisal," Economic Journal, Royal Economic Society, vol. 91(361), pages 29-42, March.
    11. Cooley, Thomas F & Prescott, Edward C, 1976. "Estimation in the Presence of Stochastic Parameter Variation," Econometrica, Econometric Society, vol. 44(1), pages 167-184, January.
    12. Sargent, Thomas J, 1976. "The Observational Equivalence of Natural and Unnatural Rate Theories of Macroeconomics," Journal of Political Economy, University of Chicago Press, vol. 84(3), pages 631-640, June.
    13. Lawrence R. Klein, 1964. "A Postwar Quarterly Model: Description and Applications," NBER Chapters, in: Models of Income Determination, pages 11-57, National Bureau of Economic Research, Inc.
    14. Bjerkholt, Olav, 2005. "Frisch'S Econometric Laboratory And The Rise Of Trygve Haavelmo'S Probability Approach," Econometric Theory, Cambridge University Press, vol. 21(3), pages 491-533, June.
    15. Fischer, Stanley, 1977. "Long-Term Contracts, Rational Expectations, and the Optimal Money Supply Rule," Journal of Political Economy, University of Chicago Press, vol. 85(1), pages 191-205, February.
    16. Milton Friedman, 1957. "Introduction to "A Theory of the Consumption Function"," NBER Chapters, in: A Theory of the Consumption Function, pages 1-6, National Bureau of Economic Research, Inc.
    17. Hendry,David F. & Morgan,Mary S., 1997. "The Foundations of Econometric Analysis," Cambridge Books, Cambridge University Press, number 9780521588706, September.
    18. Brian Snowdon, 2007. "The New Classical Counter-Revolution: False Path or Illuminating Complement?," Eastern Economic Journal, Eastern Economic Association, vol. 33(4), pages 541-562, Fall.
    19. Kevin D. Hoover, 2012. "Microfoundational Programs," Chapters, in: Microfoundations Reconsidered, chapter 1, Edward Elgar Publishing.
    20. Lucas, Robert E, Jr, 1978. "Asset Prices in an Exchange Economy," Econometrica, Econometric Society, vol. 46(6), pages 1429-1445, November.
    21. repec:bla:scandj:v:98:y:1996:i:1:p:33-48 is not listed on IDEAS
    22. Marvin Goodfriend & Robert G. King, 1997. "The New Neoclassical Synthesis and the Role of Monetary Policy," NBER Chapters, in: NBER Macroeconomics Annual 1997, Volume 12, pages 231-296, National Bureau of Economic Research, Inc.
    23. Duo Qin, 2011. "The Phillips Curve from the Perspective of the History of Econometrics," History of Political Economy, Duke University Press, vol. 43(5), pages 283-308, Supplemen.
    24. Elke Muchlinski, 2005. "The Lucas Critique and Keynes Response.Considering the History of Macroeconomics," Macroeconomics 0503019, University Library of Munich, Germany.
    25. Pedro Garcia Duarte, 2011. "Recent Developments in Macroeconomics: The DSGE Approach to Business Cycles in Perspective," Chapters, in: John B. Davis & D. Wade Hands (ed.), The Elgar Companion to Recent Economic Methodology, chapter 16, Edward Elgar Publishing.
    26. Miller, Preston J. & Rolnick, Arthur J., 1980. "The CBO's policy analysis : An unquestionable misuse of a questionable theory," Journal of Monetary Economics, Elsevier, vol. 6(2), pages 171-198, April.
    27. Brayton, Flint & Levin, Andrew & Lyon, Ralph & Williams, John C., 1997. "The evolution of macro models at the Federal Reserve Board," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 47(1), pages 43-81, December.
    28. Ronald G. Bodkin & Lawrence R. Klein & Kanta Marwah, 1991. "A History of Macroeconometric Model-Building," Books, Edward Elgar Publishing, number 51.
    29. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
    30. V. V. Chari & Patrick J. Kehoe & Ellen R. McGrattan, 2009. "New Keynesian Models: Not Yet Useful for Policy Analysis," American Economic Journal: Macroeconomics, American Economic Association, vol. 1(1), pages 242-266, January.
    31. Adams, F Gerard & Duggal, Vijaya G, 1974. "Anticipations Variables in an Econometric Model: Performance of the Anticipations Version of Wharton Mark III," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 15(2), pages 267-284, June.
    32. John B. Davis & D. Wade Hands (ed.), 2011. "The Elgar Companion to Recent Economic Methodology," Books, Edward Elgar Publishing, number 13684.
    33. Milton Friedman, 1957. "A Theory of the Consumption Function," NBER Books, National Bureau of Economic Research, Inc, number frie57-1.
    34. Rossiter, Rosemary, 1985. "A modified procedure for simulation of macroeconometric models," Economic Modelling, Elsevier, vol. 2(4), pages 324-330, October.
    35. Granger, C W J, 1969. "Investigating Causal Relations by Econometric Models and Cross-Spectral Methods," Econometrica, Econometric Society, vol. 37(3), pages 424-438, July.
    36. George Katona, 1980. "How Expectations Are Really Formed," Challenge, Taylor & Francis Journals, vol. 23(5), pages 32-35, November.
    37. Miller, Preston J, 1978. "Forecasting with Econometric Methods: A Comment," The Journal of Business, University of Chicago Press, vol. 51(4), pages 579-584, October.
    38. Pedro Garcia Duarte & Gilberto Tadeu Lima, 2012. "Microfoundations Reconsidered," Books, Edward Elgar Publishing, number 14869.
    39. Anderson, Paul A., 1979. "Rational expectations forecasts from nonrational models," Journal of Monetary Economics, Elsevier, vol. 5(1), pages 67-80, January.
    40. Preston J. Miller, 1978. "Forecasting with econometric methods: a comment," Working Papers 104, Federal Reserve Bank of Minneapolis.
    41. Patrick Minford & David Peel, 2002. "Advanced Macroeconomics," Books, Edward Elgar Publishing, number 1775.
    42. Blinder, Alan S, 1987. "Keynes, Lucas, and Scientific Progress," American Economic Review, American Economic Association, vol. 77(2), pages 130-136, May.
    43. Alan S. Blinder, 1988. "The Fall and Rise of Keynesian Economics," The Economic Record, The Economic Society of Australia, vol. 64(4), pages 278-294, December.
    44. Barro, Robert J., 1977. "Long-term contracting, sticky prices, and monetary policy," Journal of Monetary Economics, Elsevier, vol. 3(3), pages 305-316, July.
    45. Vercelli,Allessandro, 1991. "Methodological Foundations of Macroeconomics," Cambridge Books, Cambridge University Press, number 9780521392945, September.
    46. Lucas, Robert E., 1977. "Understanding business cycles," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 5(1), pages 7-29, January.
    47. Blanchard, Olivier J, 1984. "The Lucas Critique and the Volcker Deflation," American Economic Review, American Economic Association, vol. 74(2), pages 211-215, May.
    48. Sargent, Thomas J., 1996. "Expectations and the nonneutrality of Lucas," Journal of Monetary Economics, Elsevier, vol. 37(3), pages 535-548, June.
    49. Lucas, Robert Jr., 1972. "Expectations and the neutrality of money," Journal of Economic Theory, Elsevier, vol. 4(2), pages 103-124, April.
    50. repec:bla:ecorec:v:64:y:1988:i:187:p:278-94 is not listed on IDEAS
    51. Lucas, Robert Jr, 1976. "Econometric policy evaluation: A critique," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 1(1), pages 19-46, January.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Rancan, Antonella, 2021. "The “Place Of The Phillips Curve” in Macroeconometric Models: The Case of the First Federal Reserve Board’s Model (1966-1980s)," OSF Preprints t5jrx, Center for Open Science.
    2. Aurélien Goutsmedt & Erich Pinzón-Fuchs & Matthieu Renault & Francesco Sergi, 2017. "Reacting to the Lucas Critique: The Keynesians' Pragmatic Replies," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-01625169, HAL.
    3. Goutsmedt, Aurélien & Pinzón-Fuchs, Erich & Sergi, Francesco & Renault, Matthieu, 2019. "Reacting to the Lucas Critique: The Keynesians' Replies," OSF Preprints qxh46, Center for Open Science.
    4. Aurélien Goutsmedt, 2017. "Stagflation and the crossroad in macroeconomics: the struggle between structural and New Classical macroeconometrics," Documents de travail du Centre d'Economie de la Sorbonne 17043, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
    5. Christian Müller-Kademann, 2018. "The Lucas Critique: A Lucas Critique," Economic Thought, World Economics Association, vol. 7(2), pages 54-62, November.
    6. Aurélien Goutsmedt, 2016. "The New Classical Explanation of the Stagflation: A Psychological Way of Thinking," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-01281962, HAL.
    7. Erich Pinzón-Fuchs, 2016. "Macroeconometric modeling as a "photographic description of reality" or as an "engine for the discovery of concrete truth" ? Friedman and Klein on statistical illusions," Working Papers halshs-01364812, HAL.
    8. Belongia, Michael T. & Ireland, Peter N., 2017. "Circumventing the zero lower bound with monetary policy rules based on money," Journal of Macroeconomics, Elsevier, vol. 54(PA), pages 42-58.
    9. Servaas Storm, 2021. "Labour's loss: Why macroeconomics matters," PSL Quarterly Review, Economia civile, vol. 74(299), pages 249-285.
    10. Matthieu Renault, 2018. "Edmond Malinvaud´s Criticisms of the New Classical Economics: Restoring the Nature and the Rationale of the Old Keynesians´ Opposition," Working Papers, Department of Economics 2018_21, University of São Paulo (FEA-USP).
    11. Francesco Sergi, 2015. "L'histoire (faussement) naïve des modèles DSGE," Documents de travail du Centre d'Economie de la Sorbonne 15066, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
    12. Francesco Sergi, 2015. "L'histoire (faussement) naïve des modèles DSGE," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-01222798, HAL.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Akhand Akhtar Hossain, 2009. "Central Banking and Monetary Policy in the Asia-Pacific," Books, Edward Elgar Publishing, number 12777.
    2. Gerunov, Anton, 2014. "Критичен Преглед На Основните Подходи За Моделиране На Икономическите Очаквания [A Critical Review of Major Approaches for Modeling Economic Expectations]," MPRA Paper 68797, University Library of Munich, Germany.
    3. Francesco Sergi, 2020. "The Standard Narrative about DSGE Models in Central Banks’ Technical Reports," The European Journal of the History of Economic Thought, Taylor & Francis Journals, vol. 27(2), pages 163-193, March.
    4. Pedro Garcia Duarte, 2012. "Not Going Away? Microfoundations in the Making of a New Consensus in Macroeconomics," Chapters, in: Microfoundations Reconsidered, chapter 6, Edward Elgar Publishing.
    5. Gbaguidi, David, 2012. "La courbe de Phillips : temps d’arbitrage et/ou arbitrage de temps," L'Actualité Economique, Société Canadienne de Science Economique, vol. 88(1), pages 87-119, mars.
    6. Francesco Sergi, 2015. "L'histoire (faussement) naïve des modèles DSGE," Documents de travail du Centre d'Economie de la Sorbonne 15066, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
    7. Aurélien Goutsmedt, 2017. "Stagflation and the crossroad in macroeconomics: the struggle between structural and New Classical macroeconometrics," Post-Print halshs-01625188, HAL.
    8. Aurélien Goutsmedt & Erich Pinzón-Fuchs & Matthieu Renault & Francesco Sergi, 2017. "Reacting to the Lucas Critique: The Keynesians' Pragmatic Replies," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-01625169, HAL.
    9. Taylor, John B., 1999. "Staggered price and wage setting in macroeconomics," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 15, pages 1009-1050, Elsevier.
    10. Pedro Garcia Duarte & Kevin D. Hoover, 2012. "Observing Shocks," History of Political Economy, Duke University Press, vol. 44(5), pages 226-249, Supplemen.
    11. Frederic S. Mishkin, 2007. "Will Monetary Policy Become More of a Science?," NBER Working Papers 13566, National Bureau of Economic Research, Inc.
    12. David F. Hendry, 2020. "A Short History of Macro-econometric Modelling," Economics Papers 2020-W01, Economics Group, Nuffield College, University of Oxford.
    13. Geweke, J. & Joel Horowitz & Pesaran, M.H., 2006. "Econometrics: A Bird’s Eye View," Cambridge Working Papers in Economics 0655, Faculty of Economics, University of Cambridge.
    14. Lucas Papademos, 2005. "Macroeconomic theory and monetary policy: the contributions of Franco Modigliani and the ongoing debate," BNL Quarterly Review, Banca Nazionale del Lavoro, vol. 58(233-234), pages 187-214.
    15. Aurélien Goutsmedt, 2016. "The New Classical Explanation of the Stagflation: A Psychological Way of Thinking," Documents de travail du Centre d'Economie de la Sorbonne 16018, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
    16. Bennett T. McCallum, 2002. "Recent developments in monetary policy analysis: the roles of theory and evidence," Economic Quarterly, Federal Reserve Bank of Richmond, issue Win, pages 67-96.
    17. Christopher L. Gilbert & Duo Qin, 2005. "The First Fifty Years of Modern Econometrics," Working Papers 544, Queen Mary University of London, School of Economics and Finance.
    18. Lucas, Jr., Robert E., 1995. "Monetary Neutrality," Nobel Prize in Economics documents 1995-1, Nobel Prize Committee.
    19. Thomas Delcey & Francesco Sergi, 2019. "The Efficient Market Hypothesis and Rational Expectations. How Did They Meet and Live (Happily?) Ever After," Working Papers hal-02187362, HAL.
    20. Kevin D. Hoover & Òscar Jordà, 2001. "Measuring systematic monetary policy," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 113-144.

    More about this item

    Keywords

    History of macroeconomics; Keynesian economics; Lucas Critique; Macroeconometrics; Rational Expectations;
    All these keywords.

    JEL classification:

    • B22 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Macroeconomics
    • B41 - Schools of Economic Thought and Methodology - - Economic Methodology - - - Economic Methodology
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hal:cesptp:halshs-01179114. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: CCSD (email available below). General contact details of provider: https://hal.archives-ouvertes.fr/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.