Reacting to the Lucas Critique: The Keynesians' Replies

In 1976, Robert Lucas explicitly criticized Keynesian macroeconometric models for their inability to correctly predict the effects of alternative economic policies. Today, most contemporary macroeconomists and some historians of economics consider that the Lucas’s critique led forcefully to immediate disqualification of the Keynesian macroeconometric approach. This narrative is based on the interpretation of the Lucas Critique as a fundamental principle for economic reasoning that was (and still is) logically unquestionable. We consider that this narrative is problematic both in terms of historiography and of the effects that it can have in the field as a way of assigning importance and credit to particular macroeconomists. Indeed, the point of view of the Keynesian economists is missing despite the fact that they were the target of Lucas’s paper and that throughout the 1970s and 1980s they produced a fierce reaction against it. In this paper, we analyze the reactions by a broad set of authors (that we label as “Keynesians”) that disputed the relevance of the critique. In spite of their diversity in methodological, theoretical, and policy issues, these reactions were characterized by their common questioning of the empirical and practical relevance of the Lucas critique.