Reacting to the Lucas Critique: The Keynesians' pragmatic replies

Goutsmedt, Aur�lien; Pinzon-Fuchs, Erich; Renault, Matthieu; Sergi, Francesco

Abstract

We illustrate how the Lucas Critique was called into question by Keynesian macroeconomists during the 1970s and 1980s. Our claim is that Keynesians' reactions were carried out from a pragmatic approach, which addressed the empirical and practical relevance of the Critique.

Keynesians rejected the Critique as a general principle with no relevance for concrete macroeconometric practice; their rejection relied on econometric investigations and contextual analysis of the U.S. 1970s stagflation and its aftermath. Keynesians argued that the parameters of their models remained stable across this period, and that simpler ways to account for stagflation (such as the introduction of supply shocks into their models) provided
better alternatives to improve policy evaluation.

• Working Paper Type: Working Paper
• Publication Date: Oct 30, 2017
• Deposit Date: Sep 21, 2018
• Publicly Available Date: Oct 16, 2018
• Peer Reviewed: Not Peer Reviewed
• DOI: https://doi.org/10.2139/ssrn.3060571
• Keywords: history of macroeconomics, Lucas Critique, Keynesian macroeconometrics, stagflation
• Public URL: https://uwe-repository.worktribe.com/output/879478
• Related Public URLs: https://halshs.archives-ouvertes.fr/halshs-01625169
• Contract Date: Sep 21, 2018