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The Lucas Critique in Light of Swiss Monetary Policy

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  • Fischer, Andreas M
  • Peytrignet, Michel

Abstract

Lucas (1976) argues that in the event of policy regime changes, regression models are by construction misspecified and therefore behave poorly. Unstable exonometric regressions, however, do not exclude the possibility of an underlying constant behavioral function. When marginal processes are subject to regime shifts, valid conditioning is crucial for parameter constancy. Through tests of exogeneity, proposed recently by Engle and Hendry (1990), the authors examine the legitimacy of conditioning claims for Swiss money demand functions during the 1973-89 period. The implications from their exogeneity results are that the Lucas critique is refuted and the specified money demand function is invariant to changes in monetary policy. Copyright 1991 by Blackwell Publishing Ltd

Suggested Citation

  • Fischer, Andreas M & Peytrignet, Michel, 1991. "The Lucas Critique in Light of Swiss Monetary Policy," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 53(4), pages 481-493, November.
    • Handle: RePEc:bla:obuest:v:53:y:1991:i:4:p:481-93
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    Cited by:

    1. Dreger, Christian & Wolters, Jürgen, 2015. "Unconventional monetary policy and money demand," Journal of Macroeconomics, Elsevier, vol. 46(C), pages 40-54.
    2. Ansgar Belke, 2002. "Does the ECB Follow the FED?," Diskussionspapiere aus dem Institut für Volkswirtschaftslehre der Universität Hohenheim 211/2002, Department of Economics, University of Hohenheim, Germany.
    3. Neil Karunaratne, 1997. "High-Tech Innovation, Growth and Trade Dynamics in Australia," Open Economies Review, Springer, vol. 8(2), pages 151-170, April.
    4. Fischer, Andreas M., 2007. "Measuring income elasticity for Swiss money demand: What do the cantons say about financial innovation?," European Economic Review, Elsevier, vol. 51(7), pages 1641-1660, October.
    5. Dreger, Christian & Wolters, Jürgen, 2016. "On the Empirical Relevance of the Lucas Critique: the Case of Euro Area Money Demand," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 43(1), pages 61-82.
    6. Ansgar Belke & Daniel Gros, 2005. "Asymmetries in the Trans-Atlantic Monetary Policy Relationship: Does the ECB follow the Fed?," CESifo Working Paper Series 1428, CESifo.
    7. Katrin Assenmacher-Wesche, 2008. "Modeling Monetary Transmission in Switzerland with a Structural Cointegrated VAR Model," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 144(II), pages 197-246, June.
    8. Petra Gerlach-Kristen, 2001. "The Demand for Money in Switzerland 1936-1995," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 137(IV), pages 535-554, December.
    9. H. Peter Boswijk & Jean-Pierre Urbain, 1997. "Lagrance-multiplier tersts for weak exogeneity: a synthesis," Econometric Reviews, Taylor & Francis Journals, vol. 16(1), pages 21-38.
    10. Abdur Chowdhury, 1995. "The demand for money in a small open economy: The case of Switzerland," Open Economies Review, Springer, vol. 6(2), pages 131-144, April.
    11. Belke, Ansgar, 2000. "Partisan Political Business Cycles in the German Labour Market? Empirical Tests in the Light of the Lucas-Critique," Public Choice, Springer, vol. 104(3-4), pages 225-283, September.
    12. repec:adr:anecst:y:2002:i:67-68:p:16 is not listed on IDEAS

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