Criticizing the Lucas Critique: Macroeconometricians' Response to Robert Lucas

URL des Documents de travail : http://centredeconomiesorbonne.univ-paris1.fr/documents-de-travail/Documents de travail du Centre d'Economie de la Sorbonne 2015.59 - ISSN : 1955-611XThe standard history of macroeconomics considers Lucas (1976)– “the Lucas Critique” –as a path-breaking innovation for the discipline. According to this view Lucas's article dismissed the traditional macroeconometric practice calling for new ways of conceiving the quantitative evaluation of economic policies. The Lucas Critique is considered, nowadays, as a fundamental principle of macroeconomic modeling (Woodford, 2003). The interpretation and the application of the Critique, however, represent still unsolved issues in economics (Chari et al., 2008). Even if the influence of Lucas's contribution cannot be neglected, something seems to be missing in the narrative: the reactions of the economists that were directly targeted by the Critique. Modeling practices of economic policy evaluation were not overthrown immediately after Lucas (1976), creating a divide between theoretical and applied macroeconomics (Brayton et al., 1977). The purpose of this paper is to study the reactions of the macroeconometricians criticized by Lucas. We focus especially on those macroeconometricians who worked on policy evaluation and who held an expertise position in governmental institutions. We categorize the different reactions to the Critique, in order to enrich the understanding of the evolution of modeling and expertise practices through the analysis of the debates–which have not yet been completely solved. In the first section, we propose a careful account of Lucas's argument and of some of the previous works anticipating the substantial outline of the Critique (like Frisch's notion of autonomy). Second, we bring our own interpretation of Lucas (1976). We think that we find two points of view in Lucas paper: a prescriptive one that tell you how to build a good macroeconometric model (it is the standard interpretation of the article); a positive one that relies on the fact that the Lucas critique could be seen as an attempt to explain a real-world phenomenon, the stagflation. Third, we classify the reactions of the Keynesian macroeconometricains following this line of interpretation. On the prescriptive side, the Keynesians protested against the New Classical solution to the Lucas critique (the use of the rational expectation hypothesis among other things). Klein, for instance, proposed an alternative microfoundational programme to study more empirically the formation of expectations. On the positive side, the Keynesians put into question the relevance of the Lucas Critique to explain the rise of both unemployment and inflation in the 1970s. They tried to test the impact of policy regime changes and of shifts in agents behaviour. According to us, in general, the explanation of the stagflation was elsewhere