Reacting to the Lucas Critique

Abstract

and two anonymous referees for their valuable comments on preliminary versions of this paper. The usual caveat applies. diversity, the Keynesians' reactions were characterized by their common questioning of the empirical and practical relevance of the Lucas Critique. 5 Indeed, these Keynesians took the Critique to have to pass an empirical test. An older generation a priori denied the Critique but put the burden of the empirical proof on new classical macroeconomists. Among those, we discuss the arguments and positions of Franco Modigliani, James Tobin, and Edmond Malinvaud (section 1). In the meanwhile, the empirical assessment of the Critique was further elaborated by a younger generation of Keynesians, among which we consider Alan Blinder, Olivier Blanchard, Robert Gordon and Stanley Fischer. Instead of putting the burden of the empirical proof on Lucas, these authors actively engaged with the econometric testing of parameters' instability, dismissing the Critique on empirical grounds (section 2). Finally, Robert Solow, together with other Keynesians involved in macroeconometric model building, such as Lawrence R. Klein, Otto Eckstein, and again, Fischer and Gordon, recognized that their models had not performed at their best during the stagflation period. Taking Lucas's argument seriously into account, they asked whether it provided a viable alternative to understand the economic context of the 1970s and finally argued that the Critique was not relevant for this purpose (section 3).

Economic theory in an imperfect world: Frank Hahn, general equilibrium, and Keynesian economics

“…Consider the collection titled Rational Expectations and Econometric Practice (Lucas and Sargent 1981). Goutsmedt et al (2019) argue that many Keynesians criticised Lucas (1976) on empirical grounds. 14 However, others concluded that only very limited conclusions could be derived from disequilibrium methods, and that the approach was of little value (see Laroque and Salanie 1995).…”

An independent European macroeconomics? A history of European macroeconomics through the lens of the European Economic Review

“…Historians have also underlined the discontinuities within these transformations, as well as the resistance against them (Goutsmedt, 2021;Goutsmedt et al, 2019;Renault, 2020), their varying impact on applied and empirical works (Boumans and Duarte, 2019;Qin, 2013;Renault, 2022), but also the existence of alternative theoretical research programmes (Backhouse and Boianovsky, 2013;Cherrier and Saïdi, 2018;Hoover, 2012). Nevertheless, these historical contributions remained generally US-centred.…”

To change or not to change. The evolution of forecasting models at the Bank of England

“…For a presentation of new classical contributions in the 1970s, see De Vroey (2016); seeGoutsmedt et al (2019) for a more in-depth analysis of the context of the criticisms addressed to macroeconometric models.…”