The Lucas Critique in Practice: An Empirical Investigation of the Impact of European Monetary Integration on the Term Structure
AbstractAn empirical investigation of 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, 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.
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Bibliographic InfoPaper provided by Institute for Empirical Research in Economics - University of Zurich in its series IEW - Working Papers with number 082.
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Lucas Critique; Monetary Union; Term Structure;
Find related papers by JEL classification:
- E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
This paper has been announced in the following NEP Reports:
- NEP-ALL-2001-08-21 (All new papers)
- NEP-DGE-2001-08-21 (Dynamic General Equilibrium)
- NEP-EEC-2001-08-21 (European Economics)
- NEP-IFN-2001-08-21 (International Finance)
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