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Empirical Testing of the Lucas Critique for the U.S. Economy, 1986 – 2005

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  • Dahiya, Dhruv

Abstract

Lucas critique suggests parameter instability in usual policy multiplier based models, where the multipliers are estimated by running a regression of output on the relevant/hypothesized policy variables. I aim to test this implication for the U.S. economy using a simple aggregate demand and supply model, with rational expectations as the mechanism of expectation formation, given a money supply specification. The relevant data set (for inferential purposes) is quarterly, 1986:1 – 2005:4, with the exact model specification chosen from Heijdra and Ploeg.

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  • Dahiya, Dhruv, 2008. "Empirical Testing of the Lucas Critique for the U.S. Economy, 1986 – 2005," MPRA Paper 10676, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:10676
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    References listed on IDEAS

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    1. Heijdra, Ben J., 2017. "Foundations of Modern Macroeconomics," OUP Catalogue, Oxford University Press, edition 3, number 9780198784135.
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    More about this item

    JEL classification:

    • E00 - Macroeconomics and Monetary Economics - - General - - - General
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General

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