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European Monetary Union, the term structure, and the Lucas Critique

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  • Vanbergeijk, Peter A.G.

    (Vrije Universiteit Amsterdam, Faculteit der Economische Wetenschappen en Econometrie (Free University Amsterdam, Faculty of Economics Sciences, Business Administration and Economitrics)

  • Berk, Jan Marc

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 became 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, fhe 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.

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Bibliographic Info

Paper provided by VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics in its series Serie Research Memoranda with number 0013.

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Date of creation: 2001
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Handle: RePEc:dgr:vuarem:2001-13

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Web page: http://www.feweb.vu.nl

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Keywords: Lucas Critique; monetary union; term structure;

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Cited by:
  1. 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".
  2. 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.

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