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The Lucas Critique and the Volcker Deflation


  • Olivier J. Blanchard


This paper examines, in light of the Lucas Critique, the behavior of the Phillips curve and of the term structure of interest rates after October 1979. It starts with an informal account of the policy change and then discusses how we might expect these two relations to shift after such a change. It finds little evidence of a direct effect of the policy change on the Phillips curve, at least until 1982. It finds substantial evidence of a direct effect on term structure.

Suggested Citation

  • Olivier J. Blanchard, 1984. "The Lucas Critique and the Volcker Deflation," NBER Working Papers 1326, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:1326
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    1. Blanchard, Olivier J, 1983. "The Production and Inventory Behavior of the American Automobile Industry," Journal of Political Economy, University of Chicago Press, vol. 91(3), pages 365-400, June.
    2. Bulow, Jeremy I, 1982. "Durable-Goods Monopolists," Journal of Political Economy, University of Chicago Press, vol. 90(2), pages 314-332, April.
    3. Frank C. Wykoff, 1973. "A User Cost Approach to New Automobile Purchases," Review of Economic Studies, Oxford University Press, vol. 40(3), pages 377-390.
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