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"Adaptive Expectations, Underparameterization and the Lucas Critique Author info | Abstract | Publisher info | Download info | Related research | Statistics George W. Evans () (University of Oregon Economics Department)
Garey Ramey ("University of California, San Diego")
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A striking implication of the replacement of adaptive expectations by Rational Expectations was the "Lucas Critique," which showed that expectation parameters, and endogenous variable dynamics, depend on policy parameters. We consider this issue from the vantage point of a bounded rationality, where for transparency we model bounded rationality by means of simple adaptive expectations.We show that for a range of processes, monetary policy remains subject to the Lucas critique. However, there are also regimes in which the expectation parameter is locally invariant and the Lucas critique does not apply.
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Paper provided by University of Oregon Economics Department in its series University of Oregon Economics Department Working Papers with number
2001-8.
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Length: 18
Date of creation: 29 Nov 2001Date of revision:
01 Dec 2004Handle: RePEc:ore:uoecwp:2001-8Contact details of provider: Postal: 1285 University of Oregon, 435 PLC, Eugene, OR 97403-1285 Phone: (541) 346-4661 Fax: (541) 346-1243 Email: Web page: http://economics.uoregon.edu/ More information through EDIRC
For technical questions regarding this item, or to correct its listing, contact: (Bill Harbaugh).
Keywords: Lucas critique expectations underparameterization bounded rationality learning Other versions of this item:
Find related papers by JEL classification: E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
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