The Lucas critique and the stability of empirical models
This paper reconsiders 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 to capture the magnitude of the historical shift in the Federal Reserve's policy r...
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| Veröffentlicht in: | Journal of applied econometrics (Chichester, England) England), 2010-01, Vol.25 (1), p.177-194 |
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| container_title | Journal of applied econometrics (Chichester, England) |
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| creator | Lubik, Thomas A. Surico, Paolo |
| description | This paper reconsiders 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 to capture the magnitude of the historical shift in the Federal Reserve's policy rule. Using Monte Carlo simulations and a backward-looking model of aggregate supply and demand, we find that shifts in the policy rule induce breaks in both the reduced-form coefficients and the reduced-form error variances. When the instability of the reduced-form error variances is accounted for, the Lucas critique is found to be empirically relevant. |
| doi_str_mv | 10.1002/jae.1129 |
| format | Article |
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When the instability of the reduced-form error variances is accounted for, the Lucas critique is found to be empirically relevant.</description><identifier>ISSN: 0883-7252</identifier><identifier>EISSN: 1099-1255</identifier><identifier>DOI: 10.1002/jae.1129</identifier><identifier>CODEN: JAECET</identifier><language>eng</language><publisher>Chichester, UK: John Wiley & Sons, Ltd</publisher><subject>Applied general equilibrium models ; Central banks ; Coefficients ; Computer simulation ; Determinacy ; Econometric models ; Econometrics ; Economic models ; Error reduction ; Federal Reserve monetary policy ; Inflation ; Inflation rates ; Lucas critique ; Macroeconomic modeling ; Macroeconomics ; Model testing ; Modeling ; Monetary models ; Monetary policy ; Monte Carlo simulation ; Stability ; Statistical discrepancies ; Sticky prices ; Studies ; Sunspots ; Supply & demand</subject><ispartof>Journal of applied econometrics (Chichester, England), 2010-01, Vol.25 (1), p.177-194</ispartof><rights>Copyright 2010 John Wiley & Sons, Ltd.</rights><rights>Copyright © 2009 John Wiley & Sons, Ltd.</rights><rights>Copyright Wiley Periodicals Inc. 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When the instability of the reduced-form error variances is accounted for, the Lucas critique is found to be empirically relevant.</description><subject>Applied general equilibrium models</subject><subject>Central banks</subject><subject>Coefficients</subject><subject>Computer simulation</subject><subject>Determinacy</subject><subject>Econometric models</subject><subject>Econometrics</subject><subject>Economic models</subject><subject>Error reduction</subject><subject>Federal Reserve monetary policy</subject><subject>Inflation</subject><subject>Inflation rates</subject><subject>Lucas critique</subject><subject>Macroeconomic modeling</subject><subject>Macroeconomics</subject><subject>Model testing</subject><subject>Modeling</subject><subject>Monetary models</subject><subject>Monetary policy</subject><subject>Monte Carlo simulation</subject><subject>Stability</subject><subject>Statistical discrepancies</subject><subject>Sticky prices</subject><subject>Studies</subject><subject>Sunspots</subject><subject>Supply & demand</subject><issn>0883-7252</issn><issn>1099-1255</issn><fulltext>true</fulltext><rsrctype>article</rsrctype><creationdate>2010</creationdate><recordtype>article</recordtype><recordid>eNp10ctKAzEUBuAgCtYL-ALCoAvdTD1JJrellmqVqhul4CZkMimmTjs1maJ9eyMtFYSuAsmXw89_EDrB0MUA5GpiXBdjonZQB4NSOSaM7aIOSElzQRjZRwcxTgCAA4gOki_vLhsurImZDb71nwuXmVmVtek6tqb0tW-XWTPO3HTug7emzqZN5ep4hPbGpo7ueH0eotfb_ktvkA-f7-5718PcMpAqN4JKQxkuJFNSFVUJjFVWAK8kN4XFVmFOxiXBTpWlK6QlBSWyqtKvymFJ6SG6WM2dhyaFi62e-mhdXZuZaxZRi4JKoEKoJM__yUmzCLMUThPCMC0EFzyps60KS8F4SpnQ5QrZ0MQY3FjPg5-asNQY9G_NOtWsf2tONF_RL1-75VanH677a3-68pPYNmHjCeNpRYD_5vnYuu_NuwkfmgsqmB493Wm4ecS9h9FAv9EfQRSTWw</recordid><startdate>201001</startdate><enddate>201001</enddate><creator>Lubik, Thomas A.</creator><creator>Surico, Paolo</creator><general>John Wiley & Sons, Ltd</general><general>John Wiley & Sons</general><general>Wiley Periodicals Inc</general><scope>BSCLL</scope><scope>AAYXX</scope><scope>CITATION</scope><scope>8BJ</scope><scope>FQK</scope><scope>JBE</scope><scope>JQ2</scope></search><sort><creationdate>201001</creationdate><title>The Lucas critique and the stability of empirical models</title><author>Lubik, Thomas A. ; Surico, Paolo</author></sort><facets><frbrtype>5</frbrtype><frbrgroupid>cdi_FETCH-LOGICAL-c5089-a738a3514859894db055dc706d86a4c1c9162fb21e9bbe48c24328dd38ade1833</frbrgroupid><rsrctype>articles</rsrctype><prefilter>articles</prefilter><language>eng</language><creationdate>2010</creationdate><topic>Applied general equilibrium models</topic><topic>Central banks</topic><topic>Coefficients</topic><topic>Computer simulation</topic><topic>Determinacy</topic><topic>Econometric models</topic><topic>Econometrics</topic><topic>Economic models</topic><topic>Error reduction</topic><topic>Federal Reserve monetary policy</topic><topic>Inflation</topic><topic>Inflation rates</topic><topic>Lucas critique</topic><topic>Macroeconomic modeling</topic><topic>Macroeconomics</topic><topic>Model testing</topic><topic>Modeling</topic><topic>Monetary models</topic><topic>Monetary policy</topic><topic>Monte Carlo simulation</topic><topic>Stability</topic><topic>Statistical discrepancies</topic><topic>Sticky prices</topic><topic>Studies</topic><topic>Sunspots</topic><topic>Supply & demand</topic><toplevel>peer_reviewed</toplevel><toplevel>online_resources</toplevel><creatorcontrib>Lubik, Thomas A.</creatorcontrib><creatorcontrib>Surico, Paolo</creatorcontrib><collection>Istex</collection><collection>CrossRef</collection><collection>International Bibliography of the Social Sciences (IBSS)</collection><collection>International Bibliography of the Social Sciences</collection><collection>International Bibliography of the Social Sciences</collection><collection>ProQuest Computer Science Collection</collection><jtitle>Journal of applied econometrics (Chichester, England)</jtitle></facets><delivery><delcategory>Remote Search Resource</delcategory><fulltext>fulltext</fulltext></delivery><addata><au>Lubik, Thomas A.</au><au>Surico, Paolo</au><format>journal</format><genre>article</genre><ristype>JOUR</ristype><atitle>The Lucas critique and the stability of empirical models</atitle><jtitle>Journal of applied econometrics (Chichester, England)</jtitle><addtitle>J. Appl. Econ</addtitle><date>2010-01</date><risdate>2010</risdate><volume>25</volume><issue>1</issue><spage>177</spage><epage>194</epage><pages>177-194</pages><issn>0883-7252</issn><eissn>1099-1255</eissn><coden>JAECET</coden><abstract>This paper reconsiders 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 to capture the magnitude of the historical shift in the Federal Reserve's policy rule. Using Monte Carlo simulations and a backward-looking model of aggregate supply and demand, we find that shifts in the policy rule induce breaks in both the reduced-form coefficients and the reduced-form error variances. When the instability of the reduced-form error variances is accounted for, the Lucas critique is found to be empirically relevant.</abstract><cop>Chichester, UK</cop><pub>John Wiley & Sons, Ltd</pub><doi>10.1002/jae.1129</doi><tpages>18</tpages><oa>free_for_read</oa></addata></record> |
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| ispartof | Journal of applied econometrics (Chichester, England), 2010-01, Vol.25 (1), p.177-194 |
| issn | 0883-7252 1099-1255 |
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| source | Wiley Online Library Journals Frontfile Complete; Jstor Complete Legacy |
| subjects | Applied general equilibrium models Central banks Coefficients Computer simulation Determinacy Econometric models Econometrics Economic models Error reduction Federal Reserve monetary policy Inflation Inflation rates Lucas critique Macroeconomic modeling Macroeconomics Model testing Modeling Monetary models Monetary policy Monte Carlo simulation Stability Statistical discrepancies Sticky prices Studies Sunspots Supply & demand |
| title | The Lucas critique and the stability of empirical models |
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