IDEAS home Printed from https://ideas.repec.org/p/new/wpaper/1603.html
   My bibliography  Save this paper

The Transvaluation of the Theory of Economic Policy: The Lucas Critique Reconsidered

Author

Listed:
  • Katherine Moos

    () (Department of Economics, New School for Social Research)

Abstract

This paper entertains two distinct hypotheses about the meaning and effect of the Lucas critique. The first is that the Lucas critique represents advancement in the theory of economic policy. To accept this interpretation, we will have to find evidence that the Lucas critique is empirically valid, ontologically rigorous, and theoretically sound. In search of such evidence, we will review the writings of economists both within and outside the profession’s mainstream that engage the Lucas critique on these criteria. The alternative hypothesis considered in this paper is that in denouncing the traditional theory of economic policy, Lucas sparked an ideational shift in how macroeconomists understand the meaning and value of policy. By considering macroeconomics as a moral science with a specific ontology, we can understand the philosophical implications of the Lucas critique. This paper entertains the idea that the Lucas critique altered the aspirations of economists and policymakers by undermining belief in the ability of economists to make meaningful interventions in the economy and therefore infusing implicit policy nihilism into macroeconomics.

Suggested Citation

  • Katherine Moos, 2016. "The Transvaluation of the Theory of Economic Policy: The Lucas Critique Reconsidered," Working Papers 1603, New School for Social Research, Department of Economics.
  • Handle: RePEc:new:wpaper:1603
    as

    Download full text from publisher

    File URL: http://www.economicpolicyresearch.org/econ/2016/NSSR_WP_032016.pdf
    File Function: First version, 2016
    Download Restriction: no

    References listed on IDEAS

    as
    1. Lawson, Tony, 1995. "The 'Lucas Critique': A Generalisation," Cambridge Journal of Economics, Oxford University Press, vol. 19(2), pages 257-276, April.
    2. Marcellino, Massimiliano & Salmon, Mark, 2002. "Robust Decision Theory And The Lucas Critique," Macroeconomic Dynamics, Cambridge University Press, vol. 6(01), pages 167-185, February.
    3. Peter Skott, 2012. "Pluralism, the Lucas critique, and the integration of macro and micro," UMASS Amherst Economics Working Papers 2012-04, University of Massachusetts Amherst, Department of Economics.
    4. K.Vela Velupillai, 2014. "Friedman's Characterization of the Natural Rate of Unemployment," ASSRU Discussion Papers 1411, ASSRU - Algorithmic Social Science Research Unit.
    5. Stanley, T. D., 2000. "An empirical critique of the Lucas critique," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 29(1), pages 91-107.
    6. Kevin Hoover, 1994. "Econometrics as observation: the Lucas critique and the nature of econometric inference," Journal of Economic Methodology, Taylor & Francis Journals, vol. 1(1), pages 65-80.
    7. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-491, June.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Lucas critique; macroeconomic policy evaluation; nihilism; theory of economic policy;

    JEL classification:

    • E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • C54 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Quantitative Policy Modeling

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:new:wpaper:1603. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mark Setterfield). General contact details of provider: http://edirc.repec.org/data/denewus.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.