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European Monetary Union, the Term Structure, and the Lucas Critique

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  • Peter A. G. Van Bergeijk
  • Jan Marc Berk

Abstract

In order to evaluate the empirical relevance of the Lucas Critique, we investigate whether the term structure (the relation of the long interest rate to the short interest rate) showed structural change as the deadline for the euro came closer. Our empirical analysis of the term structures (yield curves) in 12 OECD countries uncovers that econometrically estimated behavioural equations for most EMU countries were stable even in the light of the creation of the euro. This finding would seem to defy the Lucas Critique. However, the significant structural instability found for the euro area's core country, Germany, suggests that the Lucas Critique is relevant in the analysis of the impact of the creation (and future extensions) of EMU. Preliminary versions of this paper were presented at the ECB workshop on yield curve modelling, Frankfurt (1999) and the Finance Seminar at the University of Zurich (2000). Comments by participants of both workshops and by two anonymous referees are gratefully acknowledged.

Suggested Citation

  • Peter A. G. Van Bergeijk & Jan Marc Berk, 2001. "European Monetary Union, the Term Structure, and the Lucas Critique," Kyklos, Wiley Blackwell, vol. 54(4), pages 547-556, November.
    • Handle: RePEc:bla:kyklos:v:54:y:2001:i:4:p:547-556
    DOI: 10.1111/1467-6435.00169
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    References listed on IDEAS

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    1. Blanchard, Olivier J, 1984. "The Lucas Critique and the Volcker Deflation," American Economic Review, American Economic Association, vol. 74(2), pages 211-215, May.
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    Cited by:

    1. Simone Caschili & Francesca Romana Medda, 2012. "A Review of the Maritime Container Shipping Industry as a Complex Adaptive System," Interdisciplinary Description of Complex Systems - scientific journal, Croatian Interdisciplinary Society Provider Homepage: http://indecs.eu, vol. 10(1), pages 1-15.
    2. Roberto Casarin & Marco Tronzano & Domenico Sartore, 2013. "Bayesian Markov Switching Stochastic Correlation Models," Working Papers 2013:11, Department of Economics, University of Venice "Ca' Foscari".
    3. Peter A.G. van Bergeijk, 2021. "Pandemic Economics," Books, Edward Elgar Publishing, number 20401.
    4. László Kónya & Bekzod Abdullaev, 2015. "Does Ricardian equivalence hold in Australia? A revision based on testing super exogeneity with impulse-indicator saturation," Empirical Economics, Springer, vol. 49(2), pages 423-448, September.
    5. van Bergeijk, P.A.G., 2018. "China’s economic hegemony (1-2050 AD)," ISS Working Papers - General Series 637, International Institute of Social Studies of Erasmus University Rotterdam (ISS), The Hague.
    6. SANTOS, Carlos & OLIVEIRA, Maria Alberta, 2007. "Modelling The German Yield Curve And Testing The Lucas Critique, 1975-2001," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 7(1).
    7. Peter A.G. van Bergeijk, 2019. "Deglobalization 2.0," Books, Edward Elgar Publishing, number 18560.

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    More about this item

    JEL classification:

    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions

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