The Lucas critique and the stability of empirical models

Journal of Applied Econometrics - Tập 25 Số 1 - Trang 177-194 - 2010
Thomas A. Lubik1, Paolo Surico2
1Research Department, Federal Reserve Bank of Richmond, VA, USA
2London Business School, London, UK, and CEPR

Tóm tắt

AbstractThis 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. Copyright © 2009 John Wiley & Sons, Ltd.

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Thông tin xuất bản

Journal of Applied Econometrics

Tập 25 Số 1

177-194

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