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Testing for the Lucas Critique: A Quantitative Investigation

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  • Jesper Linde

Abstract

In this paper, I try to shed some new light on the "puzzle" of why the Lucas critique, believed to be important by most economists, seems to have received very little empirical support. I use a real-business-cycle model to verify that the Lucas critique is quantitatively important in theory, and to examine the properties of the super-exogeneity test, which is used to detect the applicability of the Lucas critique in practice. The results suggest that the superexogeneity test is not capable of detecting the relevance of the Lucas critique in practice in small samples.

Suggested Citation

  • Jesper Linde, 2001. "Testing for the Lucas Critique: A Quantitative Investigation," American Economic Review, American Economic Association, vol. 91(4), pages 986-1005, September.
  • Handle: RePEc:aea:aecrev:v:91:y:2001:i:4:p:986-1005
    Note: DOI: 10.1257/aer.91.4.986
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    More about this item

    JEL classification:

    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money

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    This item is featured on the following reading lists, Wikipedia, or ReplicationWiki pages:
    1. Testing for the Lucas Critique: A Quantitative Investigation (AER 2001) in ReplicationWiki
    2. Quantitative Macroeconomics and Real Business Cycles (QM&RBC)

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