Thursday, December 19, 2013

Peter Radford — The Lucas Mystique


Peter Radford trashes the Lucas critique as magical thinking. Nice job.

Real-World Economics Review Blog
The Lucas Mystique
Peter Radford

3 comments:

Dan Kervick said...

The critique in itself seems to be common sense. But the critique doesn't entail that people should use bad and stupid microfoundations.

Tom Hickey said...

The critique in itself seems to be common sense.

The basic notion is trivial. Of course, policy affects outcomes. The question is the interpretation (how).

See Matias Vernengo, A Critique of the Lucas Critique

While I believe empirical models, properly done, are fundamental to understanding and policy, network models provide us with a dynamic theory, emergent macro behaviors, that support our correct Keynesian beliefs that it is the macro foundations of micro behavior that matter, not the other Lucasian way around.

This paper shows how the Lucas critique was anticipated by Keynes contra Tinbergen in his notion of expectations: Elke Muchlinski, The Lucas Critique and Keynes Response: Considering the History of Macroeconomics

Abstract: Considering the history of macroeconomics it is surprising that Tinbergen's theory of policy is identified with so-called Keynesian economics by Lucas and Lucasians. Keynesian macropolicy is accused of neglecting the role of expectations and the effects of any changes of institutions. Due to textual evidence this paper explains that both the disregard of expectations and the institutional evolutionary process can not be addressed to Keynes's analysis.

Neil Wilson said...

The main point about the Lucas Critique is that it fails the Lucas Critique.

Exactly how arrogant do you have to be to think that you can divine the correct 'parameters' that matter?

The belief of orthodoxy is that only the high priests can find the fundamental truths and understand them.