European Monetary Union, the term structure, and the Lucas Critique
AbstractIn 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 InfoPaper provided by VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics in its series Serie Research Memoranda with number 0013.
Date of creation: 2001
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Lucas Critique; monetary union; term structure;
Other versions of this item:
- Van Bergeijk, Peter A G & Berk, Jan Marc, 2001. "European Monetary Union, the Term Structure, and the Lucas Critique," Kyklos, Wiley Blackwell, vol. 54(4), pages 547-56.
- 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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2002-03-14 (All new papers)
- NEP-CBA-2002-03-14 (Central Banking)
- NEP-EEC-2002-03-14 (European Economics)
- NEP-IFN-2002-03-14 (International Finance)
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