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The Quantitative Significance of the Lucas Critique

Author

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  • Miller, Preston J
  • Roberds, William T

Abstract

T. Doan, R. Litterman, and C. Sims have suggested using conditional forecasts to do policy analysis with Bayesian vector autoregression models. Their method seems to violate the Lucas critique, which implies that coefficients of a Bayesian vector autoregression model will change when there is a change in policy rules. In this article, the authors attempt to determine whether the Lucas critique is important quantitatively in a Bayesian vector autoregression macro model that they construct. They find evidence following two candidate policy rule changes of significant coefficient instability and of a deterioration in the performance of the Doan, Litterman, and Sims method.

Suggested Citation

  • Miller, Preston J & Roberds, William T, 1991. "The Quantitative Significance of the Lucas Critique," Journal of Business & Economic Statistics, American Statistical Association, vol. 9(4), pages 361-387, October.
  • Handle: RePEc:bes:jnlbes:v:9:y:1991:i:4:p:361-87
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    Cited by:

    1. Leeper, Eric M. & Zha, Tao, 2003. "Modest policy interventions," Journal of Monetary Economics, Elsevier, vol. 50(8), pages 1673-1700, November.
    2. Preston J. Miller & William Roberds, 1992. "How little we know about deficit policy effects," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 2-11.
    3. David E. Runkle, 1989. "The U.S. economy in 1990 and 1991: continued expansion likely," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall, pages 19-26.
    4. Freeman, John R., 1996. "A Computable Equilibrium Model for the Study of Political Economy," Bulletins 7484, University of Minnesota, Economic Development Center.
    5. Daniel M. Chin & John F. Geweke & Preston J. Miller, 2000. "Predicting turning points," Staff Report 267, Federal Reserve Bank of Minneapolis.
    6. Preston J. Miller & William Roberds, 1989. "How little we know about budget policy effects," FRB Atlanta Working Paper 89-4, Federal Reserve Bank of Atlanta.
    7. Daniel F. Waggoner & Tao Zha, 1999. "Conditional Forecasts In Dynamic Multivariate Models," The Review of Economics and Statistics, MIT Press, vol. 81(4), pages 639-651, November.
    8. Dan Chin & John Geweke & Preston Miller, 2000. "Predicting Turning Points: Technical Paper 2000-3," Working Papers 13337, Congressional Budget Office.
    9. Preston J. Miller & Richard M. Todd, 1992. "Real effects of monetary policy in a world economy," Staff Report 154, Federal Reserve Bank of Minneapolis.
    10. Arturo Estrella & Jeffrey C. Fuhrer, 2003. "Monetary Policy Shifts and the Stability of Monetary Policy Models," The Review of Economics and Statistics, MIT Press, vol. 85(1), pages 94-104, February.
    11. repec:adr:anecst:y:2002:i:67-68:p:16 is not listed on IDEAS
    12. Miller, Preston J. & Todd, Richard M., 1995. "Real effects of monetary policy in a world economy," Journal of Economic Dynamics and Control, Elsevier, vol. 19(1-2), pages 125-153.
    13. Preston J. Miller & David E. Runkle, 1989. "The U.S. economy in 1989 and 1990: walking a fine line," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 3-10.

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