Talk:Lucas critique

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BetacommandBot 11:30, 6 July 2007 (UTC)[reply]

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The following two paragraphs were inserted on Feb. 17, 2011. I deleted both, because they don't really seem valid or relevant, as stated. Also, they were not based on verifiable citations. Nonetheless, they seem like potentially interesting points, so I copy them here in case someone can provide the citations or improvements. Rinconsoleao (talk) 09:44, 17 February 2011 (UTC)[reply]

(1) Economists associated with

Keynesian schools of thought typically see the Lucas critique as perpetuating fallacies of composition

in their attempt to model the macro system from its micro constituents. If everyone saves more, the economy as a whole does not get richer, rather it collapses. Similar issues are common, making macroeconomics a distinctly different discipline from microeconomics.

I really don't see why this is a relevant critique. Although most of the papers of Lucas assume a

DSGE models with heterogeneous agents. If it's true that when everyone saves more, the economy collapses, then shouldn't it be possible to demonstrate that using a macroeconomic model constructed from the interaction of many individual agents? Such a model might require imperfectly rational agents, or imperfectly flexible prices and interest rates, but in that case the relevant issue is choosing the appropriate microeconomic assumptions, not a fallacy of composition. Rinconsoleao (talk) 09:50, 17 February 2011 (UTC)[reply

]

By the way, it's true that the

Keynesian economists (e.g. in Paul Samuelson's introductory economics textbook). But I don't see why it is relevant for the Lucas critique specifically, and I'm not aware of anyone who has claimed it is relevant. Rinconsoleao (talk) 14:00, 17 February 2011 (UTC)[reply

]

(2) A second critique is of the presumed rational agent. Behavioral economics has shown extensively that humans are not rational agents in terms of classic economic theory, but have additional, and even conflicting, goals that render a blanket assumption of utility maximization unrealistic.

This critique seems to exaggerate the rationality requirements for the Lucas critique. Lucas just says that if policy changes, economic interactions will change, because agents will adjust their behavior to the new policies. Agents don't have to be perfectly rational (or even have perfectly well-defined objective functions) in order for that to be true. They just have to have some scope for adjusting their behavior when incentives change. Rinconsoleao (talk) 09:55, 17 February 2011 (UTC)[reply]

While both arguments seem weak, if we can find some published sources that make related points, that could be a useful addition to this page.

Dr. Smith has reviewed this Wikipedia page, and provided us with the following comments to improve its quality:

This is a perfectly adequate short introduction to the Lucas critique itself. However, it does not discuss the empirical relevance of the critique, though there are some references to the empirical literature. Given that the empirical literature on the Lucas critique is large and controversial, this is not surprising. Similarly, it rather takes for granted the importance of establishing micro-foundations, rather than trying to confront the difficulties of aggregation.

We hope Wikipedians on this talk page can take advantage of these comments and improve the quality of the article accordingly.

Dr. Smith has published scholarly research which seems to be relevant to this Wikipedia article:

• Reference : M. Hashem Pesaran & Ron P. Smith, 2012. "Counterfactual Analysis in Macroeconometrics: An Empirical Investigation into the Effects of Quantitative Easing," Working Paper Series 37_12, The Rimini Centre for Economic Analysis.

ExpertIdeasBot (talk) 13:38, 11 June 2016 (UTC)[reply]